A surprise deal to end decades of rivalry between Fatah and Hamas was on Thursday welcomed by the Palestinian leadership, but denounced by Israel as crossing "a red line."
The agreement, announced in Cairo on Wednesday, saw the secular Fatah party which dominates the West Bank-based Palestinian Authority, and Gaza's Islamist rulers, agree to form a transitional government ahead of elections, which will take place within a year.
Wednesday's deal, which came after 18 months of fruitless talks, drew praise from Palestinian prime minister Salam Fayyad, who expressed the hope it would be "an essential and important step to proceed to the immediate establishment of national unity."
It was also hailed by Iran, which said it would "speed up developments in the Palestinian arena and the gaining of great victories" against Israel.
But it had the opposite reaction in Israel, where hawkish Foreign Minister Avigdor Lieberman and Defence Minister Ehud Barak both warned that the Jewish state would never accept a Hamas government.
"With this accord, a red line has been crossed," Lieberman told Israel's military radio on Thursday, threatening an array of retaliatory measures, while Barak said the army would "use an iron fist to deal with any threat" and vowed to "never negotiate with Hamas."
Hamas said it had no plans to talk with Israel but would not stop Fatah from holding negotiations.
"If Fatah wants to bear the responsibility for negotiating on nonsense, let it. If it manages to get a state, good for them," senior Hamas leader Mahmud Zahar told AFP in Cairo.
The unity deal will see the two parties work together to form an interim government of independent politicians chosen by both sides, Fatah delegation chief Azzam al-Ahmad told AFP by phone from Cairo.
"This government will be tasked with preparing for presidential and legislative elections within a year," he said.
Representatives of Hamas and Fatah are to return to Cairo at the end of next week to sign the document, which also laid out terms for the release of political detainees by both sides, Zahar told reporters.
He also confirmed that Fatah and Hamas had settled their differences on security, which bedevilled 18 months of negotiations that began after a failed attempt to ink a deal in October 2009.
Mussa Abu Marzuk, a top member of Hamas's exiled leadership in Damascus, told reporters the two parties would sign the deal on Wednesday next week, after which they would begin immediate consultations on the interim government.
Shortly after the deal was announced, Prime Minister Benjamin Netanyahu issued Abbas with an ultimatum.
"Choose between peace with Israel or peace with Hamas," he said, warning a deal would pave the way for Gaza's Hamas to extend their control over the West Bank.
"There cannot be peace with both because Hamas strives to destroy the state of Israel and says so openly," he said in a statement, which was dismissed by Abbas spokesman Nabil Abu Rudeina.
"In reaction to Netanyahu's remarks we say that Palestinian reconciliation ... is an internal Palestinian affair," he told AFP. Netanyahu, for his part, "must choose between peace and settlements."
In Washington, National Security Council spokesman Tommy Vietor welcomed the deal but said any new Palestinian government must "renounce violence, abide by past agreements and recognise Israel's right to exist."
Hamas and Fatah were on the verge of agreeing a largely similar Egyptian-mediated deal in October 2009 but the Islamists backed out, protesting the terms had been revised without its consent.
Tensions between the two movements date back to the start of limited Palestinian self-rule in the early 1990s when Fatah strongmen cracked down on Islamist activists.
They worsened in January 2006, when in a surprise general election rout, Hamas beat the previously dominant Fatah to grab more than half the seats in the Palestinian parliament.
Hamas expelled Fatah from Gaza after a week of deadly clashes in June 2007, cleaving the Palestinian territories into rival hostile camps.
Back home, Palestinians across the territories welcomed the deal which came just six weeks after tens of thousands of people took to the streets to demand the two rivals patch up their differences.