Jerusalem (CNN) -- Israel's Security Cabinet announced Thursday the country won't hold peace negotiations with a Palestinian government backed by the militant Hamas movement.
The development came a day after Palestinian rival movements Fatah and Hamas embarked on an effort to form a unity government. The Security Cabinet is the part of the Israeli full Cabinet tasked with making security decisions.
"Instead of choosing peace, Abu Mazen formed an alliance with a murderous terrorist organization that calls for the destruction of Israel,' said Prime Minister Benjamin Netanyahu, referring to Palestinian President Mahmoud Abbas. "Whoever chooses the terrorism of Hamas does not want peace."
The latest development comes amid deterioration of U.S.-brokered peace talks between the Palestinian Authority and Israel -- talks that Hamas, a militant Islamic group that hasn't recognized Israel, opposed. Fatah dominates the Palestinian Authority.
Netanyahu said the agreement between Abbas and Hamas was signed "even as Israel is making efforts to advance the negotiations with the Palestinians.
"It is the direct continuation of the Palestinians' refusal to advance the negotiations," Netanyahu said. "Only last month, Abu Mazen rejected the framework principles proposed by the United States. Abu Mazen has refused to even discuss recognizing Israel as the national state of the Jewish people. He violated existing agreements by unilaterally applying to accede to international treaties and then formed an alliance with Hamas."
Netanyahu noted that the convenant for Hamas "calls for Muslims to fight and kill Jews. Hamas has fired more than 10,000 missiles and rockets at Israeli territory and has not halted terrorist actions against Israel even for a minute."
Thursday's announcement came on a day that the Israeli military and Palestinian militants clashed near the fence separating northern Gaza and Israel.
Israel's military said a bomb detonated along the fence in a "failed attempt to hurt Israeli soldiers," and that Israeli forces responded. The military did not elaborate.
Palestinian security sources said militants tried to target an Israeli military vehicle on the Gaza side of the border area, and that there were heavy exchanges of fire. Neither side reported injuries.
Mustafa Barghouti: "Palestinians are in a unified camp"
Fatah and Hamas announced Wednesday they will begin discussions to form a unity government. An interim government could be finalized in the next five weeks, with elections possible by early 2015, Fatah spokesman Fayez Abu Eitta said.
After the reconciliation was announced, Netanyahu's office said Israel canceled peace negotiations that were scheduled to take place Wednesday night.
Israel and the Palestinian Authority face an April 29 deadline to agree on a framework for a comprehensive peace treaty, but the sides appear far apart.
Mustafa Barghouti, a Palestinian lawmaker involved in the Hamas-Fatah talks, hailed what he called the "end to the division between the Palestinian people."
"Palestinians are in a unified camp, and Israel cannot claim that Palestinians cannot negotiate on behalf of all Palestinians," Barghouti told CNN on Wednesday.
The Palestinian territories of Gaza and the West Bank have been run separately for seven years. The split began taking shape in 2006 when Hamas, participating in Palestinian polls for the first time, won a majority in the Palestinian parliament.
The Palestinian Authority formed a coalition government with Hamas that year, with Abbas retaining the presidency and Hamas member Ismail Haniya becoming prime minister. But when Abbas dissolved the government in 2007, Hamas seized control of Gaza, and Haniya became Gaza's de facto political leader.
The West for years has shown support to Fatah and warned it not to join hands with militant Hamas, which several countries have deemed a terrorist organization.
Reconciliation talks started Tuesday evening, after Abbas sent a Fatah delegation to meet with Hamas representatives in Gaza. It wasn't immediately clear who would lead, though Abbas, whose Fatah group runs the West Bank, is a possibility for premier, Abu Eitta said.
CNN's Talal Abu Rahma contributed to this report