The Israeli government on Thursday cut off Mideast peace talks and threatened to impose new sanctions against the Palestinians in response to a unity agreement between rival Palestinian factions, pushing an embattled U.S. peace initiative to the brink of collapse.

Israel’s Security Cabinet made the decision during a marathon emergency meeting convened to discuss the new Palestinian deal. The rival Palestinian factions Hamas and Fatah announced a reconciliation plan meant to end a seven-year rift on Wednesday.

Israel objects to any participation in Palestinian politics by Hamas, an Islamic militant group sworn to Israel’s destruction. The group has killed hundreds of Israelis in suicide bombings and other attacks over the past two decades. In a statement issued by Prime Minister Benjamin Netanyahu’s office, the government said it would not hold negotiations with a government that “leans on Hamas.”

“Instead of choosing peace, Abu Mazen made a pact with a murderous terrorist organization that calls for the destruction of Israel,” it said, using Palestinian President Mahmoud Abbas’ nickname. “The alliance between Abu Mazen and Hamas was signed while Israel was making efforts to promote negotiations with the Palestinians. … He who chooses Hamas’ terror does not want peace.”

The statement said Israel also will respond to Abbas’ recent decision to join 15 international conventions “with a series of steps,” language that typically refers to financial sanctions against the Palestinians.Israel already halted transferring tax and customs money it collects on the Palestinians behalf, worth some $100 million a month. Those funds help keep Abbas’ self-rule government afloat.

Abbas won assurances in recent Arab League meetings that Arab countries would pay $100 million to the Palestinian Authority if Israel freezes the monthly transfers. However, some of the Arab donor countries have in the past not met their aid commitments. Thursday’s decision was the latest — and perhaps final — blow to the embattled peace process led by U.S. Secretary of State John Kerry for the past nine months.

The negotiating period had been scheduled to expire next Tuesday. After nine months of fruitless talks, the sides had been meeting in recent weeks in hopes of extending the negotiations. Saeb Erekat, the chief Palestinian peace negotiator, said Palestinian reconciliation is an internal matter.

“Israel had no right to interfere in this issue,” he said. He condemned any possible Israeli sanctions as “piracy,” saying the tax revenues are Palestinian money.

This report compiled with information from the Associated Press.