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Israel Defense Forces began formulating plans to limit services to the civilian population in Gaza Thursday, following the cabinet's decision Wednesday to declare the Gaza Strip a "hostile territory".

The security cabinet voted unanimously Wednesday to impose restrictions on the Hamas-run Gaza Strip including limiting the supply of fuel and electricity from Israel to Gaza, the transfer of goods through the crossings, the movement of people to and from the Strip, stopping visits to prisoners, and increased monitoring of funds.

United Nations Secretary-General Ban Ki-moon urged Israel on Wednesday to reconsider its decision to declare the Gaza Strip a hostile territory, warning that any cutoff of vital services would violate international law and punish the already suffering civilian population.

In one of his toughest statements aimed at Israel since taking the reins of the UN on January 1, Ban said he was very concerned at the Israeli government's declaration earlier Wednesday and its announced intent to interrupt essential services such as electricity and fuel to the civilian population.

"Such a step would be contrary to Israel's obligations towards the civilian population under international humanitarian and human rights law," he said.

"I call for Israel to reconsider this decision," the secretary-general said in a statement read by UN spokeswoman Michele Montas.

"The limitations will be implemented in accordance with formal legal position papers and the humanitarian situation in the field," read a statement following the cabinet decision.

A senior government official said that two approaches were presented during the meeting. One was to cut off electricity in response to every rocket. This approach was found to be problematic in terms of international law because it would constitute collective punishment.

The second approach, which the ministers accepted, was to compromise the ability of Hamas to govern in Gaza as the quality of life deteriorated. "We will reduce the amount of megawattage we provide to the Strip, and Hamas will have to decide whether to provide electricity to hospitals or weapons lathes," the official said.

The cabinet also authorized the closure of crossings in response to rocket fire for up to 48 hours.

Prime Minister Ehud Olmert said during the meeting that "the price of a military operation in Gaza is known to all, and in any case conditions are not ripe for this."

Defense Minister Ehud Barak echoed this sentiment, adding "We will embark on action at the right time, not on order to let off steam."

However, Barak also said that "every day that passes brings us closer to an operation in Gaza; we will decide on the means of an operation and the goals when the time comes."

Secretary of State Condoleezza Rice said Wednesday that Hamas "is indeed a hostile entity. It is a hostile entity to the U.S. as well."

Speaking at a news conference following her meeting with Foreign Minister Tzipi Livni, Rice added, "However, we will not abandon the innocent Palestinian in Gaza and indeed will make every effort to deal with their humanitarian needs."

Hamas denounces curbs on Gaza as 'declaration of war' Hamas denounced the security cabinet's decision and the sanctions as a "declaration of war."

"They aim to starve our people and force them to accept humiliating formulas that could emerge from the so-called November peace conference," said Hamas spokesman Barhoum, referring to a U.S.-sponsored meeting expected to be held in two months.

"It is a declaration of war and continues the criminal, terrorist Zionist actions against our people."

Palestinian Authority Chairman Mahmoud Abbas condemned Israel's plan, calling it an oppressive decision.

"This oppressive decision will only strengthen the choking embargo imposed on 1.5 million people in the Gaza Strip, increase their suffering and deepen their tragedy," Abbas' office said in a statement.

"It is collective punishment against the people of Gaza, and discourages serious political discussion," said Ashraf Ajrami, a minister in Abbas' government.

"We are going to ask the Americans to pressure Israel to refrain from taking such action," added Palestinian Information Minister Riyad al-Malki

Likud Chairman Benjamin Netanyahu said that he welcomed the decision. "However at the same time the government decided to disengage from Gaza, the prime minister is promoting a diplomatic plan that will bring about the establishment of 'Hamastan' in Judea and Samaria, and to the threat of missiles not only on communities in the south but also on Tel Aviv and the Dan region."

Meretz Chairman MK Yossi Beilin, on the other hand, called the cabinet decision "foolish as well as dangerous." Beilin added that the decision would strengthen Hamas, increase distress in Gaza, and damage Israel's image internationally.

Sanctions to be imposed on Gaza in stagesThe sanctions will be imposed on the Gaza Strip in stages, with Israel responding to rocket fire by disrupting electricity during the first stage.

The decision to disrupt Gaza's power supply was in part based on the fact that the electricity is used to power the metal workshops in which Qassam rockets are manufactured.

Participants in the security cabinet meeting told The Associated Press, however, that no decision had been made on when to begin cutting electricity.

According to Israeli and Palestinian officials, Gaza's population uses approximately 200 megawatts of electricity, out of which 120 are provided directly from Israeli power lines, 17 are delivered from Egypt and 65 are produced at a plant in Gaza.

The disruption of the fuel supply will be delayed until the second stage, as the decision is still subject to the findings of an ongoing legal examination of the contracts between the National Infrastructure Ministry and the Palestinians.

Subject to the legal examination, the ministers decided to completely cut off the fuel supply to the Gaza Strip, with the exception of humanitarian needs. For instance, Israel will continue to supply Gaza hospitals with the necessary fuel to power their generators.

In addition, the crossings between Israel and the Gaza Strip will further reduce operations. The crossings will only allow in food and medical supplies, and other goods, such as water pipes that are also used to manufacture Qassams, will not be let in. Human traffic at the crossings will be brought to a complete halt.

Israel will reduce ties with the Strip to a bare minimum. "This [decision] allows Israel to order a number of administrative sanctions against the Gaza Strip, of course on condition they don't cross the red line in terms of inflicting humanitarian damage," said Public Security Minister Avi Dichter.

Meanwhile, Israel Radio reported that deposed Palestinian prime minister Ismail Haniyeh of Hamas met early Wednesday with Islamic Jihad leaders, in an attempt to convince them to halt the rocket fire.