Israeli leaders criticised the new Palestinian unity government, charging that the Hamas-Fatah coalition did not meet international conditions for restoring aid, including recognising the Jewish state's right to exist.
The new government, formed after months of stormy negotiations, is slated to be approved by Parliament on Saturday.
Ephraim Sneh, Israel's deputy defence minister said on Friday that Israel would boycott the coalition of the hardline Islamic Hamas and the more moderate Fatah, "to explain to the countries of the world that they can't work with a government like this".
Sneh, a member of the left-leaning Labour Party, said Israel should circumvent the new government and try to strike a peace agreement with President Mahmoud Abbas of Fatah.
"That is the only way to drive Hamas out of power," Sneh said, speaking to Israel Radio.
Prime Minister Ismail Haniyeh of Hamas said on Thursday he hoped the new government will "launch a new era" for the Palestinians.
The deal aims to end Palestinian infighting that has claimed more than 140 lives, while satisfying international demands ahead of a crucial Arab summit in Saudi Arabia at the end of March and a visit to the region by US Secretary of State Condoleezza Rice slated later this month.
But the new government's platform does not explicitly meet any of the international community's demands that it renounce violence, recognise Israel and commit to previously signed peace agreements.