The cabinet members decided to keep suspending any further negotiations with the Palestinians as long as Hamas, viewed by Israel and the US as a terror organisation which vowed in the past to destruct Israel, is part of the government, and to hold off on transferring tax money it is collecting for the Palestinian Authority.
In addition, it was decided to prevent three members of Hamas from leaving the Gaza Strip and attending the swearing-in ceremony of the new government in Ramallah.
Israel in late April announced that it was suspending its negotiations with the Palestinians over the Hamas-Fatah unity agreement, reached after seven years of strife between the two Palestinian factions.
The cabinet said in a statement that it would not negotiate with a Hamas-backed government, although Abbas said the Palestinian Authority would continue to lead the negotiations without the involvement of the Hamas members and the Palestinians assured the government would be made out of non-political technocrats who would renounce violence and honour past agreements.
On Sunday, Israeli Prime Minister Benjamin Netanyahu urged the world not to recognise the Palestinian unity government.
"I call on all the responsible entities in the international community not to go ahead and acknowledge a Palestinian government that includes Hamas," Netanyahu said.
"Hamas is a terror organisation which calls for the destruction of Israel, and the International community should not embrace it. It would not strengthen peace but rather strengthen terror," he added.On Saturday, Palestinian President Mahmoud Abbas said that Israel had officially informed the Palestinian side that it would boycott the new Palestinian unity government.
"Israel is punishing us because we agreed with Hamas movement to achieve internal reconciliation and end internal division," Abbas said.
"We deal with the whole issue step by step. We won't respond to the Israeli decision because we don't want to be the first to respond, but we will react to any Israeli action and we will respond to it," the Palestinian president added.
Other than the decision to suspend the negotiations, the Israeli government is contemplating further sanctions against the Palestinians in response to the unity agreement, including enacting economic sanctions and possible unilateral moves like annexation of parts of the West Bank.