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The Palestinian leadership reacted furiously Monday to Israel's decision to sever ties with the Palestinian government, with Hamas calling the move "a declaration of war," and Palestinian Authority Chairman Mahmoud Abbas accusing Israel of breaking international law.

Prime Minister-designate Ehud Olmert said Sunday that Israel would end relations with the PA, which it now viewed as a "hostile" entity, and would act to prevent Hamas from becoming an established government.

The decision comes two weeks after the new Hamas-led Palestinian government was sworn in by Abbas, and several days after Hamas offered Israel "quiet for quiet."

In statements issued in quick succession on Monday, Hamas and Abbas both denounced Israel's decision.

Hamas spokesman Sami Abu Zuhri said in a statement in Gaza that Israel's decision to sever contacts with the PA amounted to "a declaration of war and a failed attempt to cause internal divisions among Palestinians."

In the West Bank city of Ramallah, Abbas said Israel's position "completely violates the agreements we have signed with them and violates international law."

"We demand from this Israeli government to stop such measures," Abbas said.

Earlier Monday, Israel closed the district coordination office (DCO) near the West Bank town of Jericho, thus suspending formal security ties with the Palestinians on Monday in a bid to further isolate the new Hamas government one day after the cabinet declared it a hostile entity.

Thousands of Palestinians poured into Gaza streets to protest both aid cuts by Western powers and a sharp increase in military action by Israel.

Having ruled out contacts with the PA, the army moved on Monday to suspend remaining security coordination.

At a district coordination office near Jericho, Palestinian Colonel Khaled Ziyar and his men piled their belongings on to a pick-up truck and turned keys to the facility over to the Israelis.

The Palestinian officers took down posters Abbas and a Palestinian flag, marking a formal break in relations.

The Jericho district coordination office, located on the outskirts of Jericho, was the last security facility to be manned by both Israelis and Palestinians.

In other parts of the West Bank, cooperation was done by telephone.

Hamas officials said Israel's decision, and newly announced cuts in direct Western financial aid to the PA, amounted to collective punishment of the Palestinian people.

"This is an injustice, and we call on the European countries to reconsider their decision," Ahmed Bahar, deputy speaker of the Hamas-led Palestinian parliament, told protesters in Gaza ahead of a meeting at which EU foreign ministers were expected to endorse the aid cuts.

"We tell the whole world, the United Nations, the Quartet, that the policy of blackmail through stopping aid will not break the will of our people," Khader Habib, an Islamic Jihad political leader, said.

Earlier on Monday, Palestinian children threw eggs at United Nations offices in Gaza to protest the aid cuts.

Israel announced its decision Sunday night to close the joint installation used as a security liaison office between Israel and the Palestinians in Jericho. Israel Defense Forces officers informed Palestinian security liaison officers that by Monday they would have to evacuate their joint offices, located adjacent to the Vered Yericho settlement.

In light of Israel's decision contact with Palestinian security forces will be maintained only to save lives - for instance, to extricate Israelis who have entered Palestinian areas, or to prevent a terror attack. Security officials rejected a police request to maintain contact also in order to retrieve stolen vehicles.

The West Bank liaison apparatus has handled various crises over the years. Officers handled violent incidents, returned Israelis who had entered Jericho without authorization, and coordinated worshippers' visits to the synagogue in Jericho.

Last week, Israel announced it was ceasing security coordination in the Gaza Strip.

Olmert has said Israel viewed the Palestinians as "one authority, and not as having two heads," but would refrain from a "personal disqualification" of PA Chairman Mahmoud Abbas.

The cabinet has agreed that foreign envoys that meet with Hamas officials would be denied access to Israeli officials.

In accordance with the policy set at the meeting, Israel will act to isolate the Hamas government, while taking care to prevent a humanitarian crisis in the territories. Israel does not want the PA to collapse completely, a security official said, adding that a collapse would make Israel's Civil Administration responsible for the territories.

In an effort to prevent a crisis, international aid would go to the Palestinian population without the intervention of the government services under Hamas' jurisdiction, perhaps by going through the authorities under Abbas' control, the official added. In addition, humanitarian aid would be able to pass through the checkpoints on the Gaza border, "subject to security considerations." Border crossings would remain closed pending the considerations of the defense establishment.

Sunday's decisions were based, in part, on an extensive report that was prepared by Yosef Mishlav, the coordinator of government activities in the territories, and describes all the channels of contact between Israel and the Palestinian Authority, along with the possible consequences of either maintaining contact or cutting ties.

Israel will allow limited Palestinian transit between the West Bank and Gaza, such as for family visits on Muslim and Christian holidays, and will continue to allow visits to Palestinians held in Israeli jails. Abbas and his entourage will be able to travel between the West Bank and Gaza, but Palestinian security officials will no longer be allowed to do so.

Israel will continue to treat Palestinian patients at Israeli hospitals, but will coordinate their travel through Palestinian hospitals rather than through the Palestinian Authority. Similarly, Palestinian farmers and merchants will communicate directly with their clients and suppliers in Israel.

In light of reports of a looming humanitarian crisis in Gaza, Mishlav and his team have prepared an index to assess the situation that examines criteria such as the medicine and food inventory, the level of savings in the banks, the population's purchasing power and sanitation conditions. A four-level ranking system has been established to assess the situation, and a security official said that according to most parameters, the Gaza Strip falls between the two highest levels - "reasonable" and "good."