RAMALLAH West Bank (Reuters) - President Mahmoud Abbas swore in a Palestinian unity government on Monday in a reconciliation deal with Hamas Islamists that set Israel on a collision course with Washington over U.S. pledges to work with the new administration while Israel shunned it.
Abbas, whose Palestinian Authority in the Israeli-occupied West Bank depends on foreign aid, appeared to have banked on Western acceptance of a 16-member cabinet of what he described as politically unaffiliated technocrats.
Setting a policy in line with U.S. and European Union demands, the Western-backed leader said his administration would continue to honour agreements and principles at the foundation of a peace process with Israel.
Hamas, which advocates Israel's destruction, has run the Gaza Strip since seizing the territory from Abbas's Fatah forces in a brief civil war in 2007. Numerous reconciliation efforts, largely brokered by Egypt, have failed over power-sharing.
"Today, and after announcing the government of national unity, we declare the end of division that caused catastrophic harm to our cause," Abbas said, voicing sentiments widely shared by Palestinians, as ministers took the oath of office in a ceremony in the West Bank city of Ramallah.
Israel predictably shunned the deal. It barred three Gaza-based ministers from travelling to the West Bank to be sworn in and reaffirmed a decision to freeze U.S.-brokered peace talks made in April, when initial steps towards Palestinian unity were taken.
The U.S. State Department, however, said it would work with the new government and cautiously pledged to continue to disburse aid to the Palestinians while monitoring its policies, drawing Israeli anger.
"It appears that President Abbas has formed an interim technocratic government that does not include ministers affiliated with Hamas," State Department spokeswoman Jen Psaki said in Washington.
"But we will continue to evaluate the composition and policies of the new government and calibrate our approach accordingly," Psaki said.
An Israeli official, speaking on condition of anonymity, released a statement after Psaki's comments, denouncing the unity cabinet as supported by Hamas, a group bent on Israel's destruction.
ISRAEL 'DEEPLY DISAPPOINTED'
"We are deeply disappointed," the statement said. It accused the United States of "enabling Abbas to believe that it is acceptable to form a government with a terrorist organisation."
Prime Minister Benjamin Netanyahu's security cabinet met in emergency session after the deal and threatened to hold Abbas accountable for any attacks against Israel, alluding to sporadic rocket fire from Gaza to which Israel has thus far responded by bombing militant strongholds in the coastal territory.
"The agreement with Hamas makes Abbas directly responsible for any terrorist activity from Gaza," said a statement summing up the Israeli ministers' meeting.
The Israeli reaction, however, fell shy of Abbas's prediction at the weekend of an outright Israeli boycott, or far-right Israeli ministers' calls to impose economic sanctions or consider annexing Jewish settlements built in occupied land.
Israel withheld some tax revenues from the Palestinians in retaliation for Abbas's signing in April of international conventions and treaties after Netanyahu reneged on a promised release of Palestinian prisoners.
Ismail Haniyeh, the outgoing Palestinian prime minister in Gaza, said in a speech in the enclave that it was "a historical day" that closed a "chapter of seven years of division".
Hamas television referred to Haniyeh as a "former prime minister", in deference to the current West Bank-based holder of the post, Rami Al-Hamdallah.
But in his address, Haniyeh spoke of pursuing "resistance by all forms", an apparent reference to actions that include armed conflict with Israel, and he said the unity deal meant that Hamas's militia, the Qassam Brigades, "became an army today".
In the absence of Fatah forces in Gaza, Hamas will effectively retain its security grip in the territory, where in addition to the 25,000-member Qassam Brigades, the Islamist group also controls 20,000 other armed personnel.
The peace talks, which began in July, had been stalled before they were suspended, with divisions deep over Israeli settlement building in land Palestinians seek for a state and Israel's demand the Palestinians recognise it as a Jewish state.
Abbas has been keen to assure Western donor countries he will remain the key Palestinian decision-maker and that security coordination between his forces and Israel will continue.
Both Fatah and Hamas see benefits to a unity pact.
With a strict blockade imposed by neighbours Israel and Egypt, Hamas has been struggling to prop up Gaza's economy and pay its 40,000 employees. Abbas wants to shore up his domestic support since the peace talks with Israel collapsed.
(Additional reporting by Nidal al-Mughrabi in Gaza, Allyn Fisher-Ilan in Jerusalem, and Lesley Wroughton in Washington; Writing by Jeffrey Heller in Jerusalem; Editing by Dan Williams, Janet Lawrence and Mohammad Zargham)