The sanctions came as the Palestinian militant group worked to consolidate its power and form a government, nominating one of its more pragmatic leaders, Ismail Haniyeh, to be the new prime minister.

Also Sunday, Israeli troops killed four Palestinians in two separate incidents.

Mahmoud Abbas, president of the Palestinian Authority, was scheduled to meet Haniyeh in Gaza on Monday and formally ask him to assemble a cabinet, a task Haniyeh would have five weeks to complete. Haniyeh said Hamas would begin talks with possible coalition partners Monday.

The group, which calls for the destruction of Israel and has carried out scores of deadly suicide bombings against Israelis, trounced Abbas' corruption-riddled Fatah party in Jan. 25 elections, winning 74 of 132 parliament seats.

Israel and western countries demanded the group renounce violence and recognize Israel's right to exist, but Hamas resisted pressure to moderate. The group took control of the Palestinian legislature when the new parliament was sworn in Saturday.

"The PA is - in practice - becoming a terrorist authority," acting Israeli Prime Minister Ehud Olmert told his cabinet at the beginning of its meeting Sunday. "Israel will not hold contacts with a government in which Hamas takes part."

The cabinet decided to stop the transfer of the roughly $55 million US a month it collects in taxes and tariffs on behalf of the Palestinian Authority. The order did not specify when the payments would stop, but government spokesman Asaf Shariv said the next payment, scheduled for early March, "won't take place."

Army radio quoted Defence Minister Shaul Mofaz saying the cutoff would be reviewed each month.

The Palestinian Authority relies on that money to help pay the salaries of roughly 140,000 government employees, including about 57,000 in the security forces.

Should the government, the Palestinians' largest employer, be forced to lay off tens of thousands of workers, it would lead to increased chaos and poverty in Palestinian towns throughout the West Bank and Gaza.

Palestinian experts estimate that the Palestinian budget shortfall is about $1 billion a year, and the Israel-collected funds would cover about half of that.

However, the cabinet held back from adopting far harsher proposals made by Israeli security officials, including a recommendation to seal off the Gaza Strip from Israel, barring thousands of Palestinian labourers from entering Israel and eliminating all trade with the impoverished area.

Israel's acting foreign minister, Tzipi Livni, said the government did not want to worsen the daily lives of Palestinians or cause an international backlash against Israel.

But she warned that "Israel will take a number of additional politically significant steps regarding the Palestinian Authority." She did not elaborate.

Mofaz told Israel TV the government could freeze work on the construction of a seaport and airport in Gaza.

The cabinet also decided to ask the international community to stop giving money to the Palestinians, though it said humanitarian aid should continue.

Abbas criticized reaction to the Hamas ascension to power. "We chose in free elections that the whole world witnessed were free and fair," he told reporters in Gaza. "We can't say we will or not accept the results."

Abbas said cuts in aid are already being felt. "We are in real financial crisis," he said. "We hope we can overcome it month by month."

Hamas condemned the cabinet decision and said it was political posturing ahead of Israel's own election March 28. Haniyeh said he was hopeful his future government would be able to find new sources of funding.

Haniyeh criticized Israel for what he called "collective punishment." He told Al-Jazeera TV, Israel should instead "deal with reality on the basis that there are people who are looking for rights, a state, return (of refugees), freedom and dignity."

The head of the Arab League, Amr Moussa, said Sunday that Arab governments were considering providing the money to make up for the frozen transfers from Israel. Arab governments have not been among the top donors to the Palestinian Authority in the past, and some have failed to give pledged funds.

The recommendation for a "diet," along with the edicts Israel is poised to impose on the Palestinian people, should have aroused a hue and cry among Israeli society.

The Hamas team had not laughed so much in a long time. The team, headed by the prime minister's advisor Dov Weissglas and including the Israel Defense Forces chief of staff, the director of the Shin Bet and senior generals and officials, convened for a discussion with Foreign Minister Tzipi Livni on ways to respond to the Hamas election victory. Everyone agreed on the need to impose an economic siege on the Palestinian Authority, and Weissglas, as usual, provided the punch line: "It's like an appointment with a dietician. The Palestinians will get a lot thinner, but won't die," the advisor joked, and the participants reportedly rolled with laughter. And, indeed, why not break into laughter and relax when hearing such a successful joke? If Weissglas tells the joke to his friend Condoleezza Rice, she would surely laugh too.

But Weissglas' wisecrack was in particularly poor taste. Like the thunder of laughter it elicited, it again revealed the extent to which Israel's intoxication with power drives it crazy and completely distorts its morality. With a single joke, the successful attorney and hedonist from Lilenblum Street, Tel Aviv demonstrated the chilling heartlessness that has spread throughout the top echelon of Israel's society and politics. While masses of Palestinians are living in inhumane conditions, with horrifying levels of unemployment and poverty that are unknown in Israel, humiliated and incarcerated under our responsibility and culpability, the top military and political brass share a hearty laugh a moment before deciding to impose an economic siege that will be even more brutal than the one until now.

The proposal to put hungry people on a diet is accepted here without shock, without public criticism; even if only said in jest, it is incomparably worse than the Danish caricature. It reflects a widespread mood that will usher in cruel, practical measures. If until now one could argue that Israel primarily demonstrated insensitivity to the suffering of the other and closed its eyes (especially the stronger classes, busy with their lives of plenty) while a complete nation was groaning only a few kilometers away, now Israel is also making jokes at the expense of the other's suffering.

This was not the first joke or contribution by Weissglas to the racist and lord-like public discourse vis-a-vis the Palestinians. His true face was already revealed about a year and a half ago in the famous interview with Ari Shavit in Haaretz, when he stated,"And we educated the world to understand that there is no one to talk to. And we received a no-one-to-talk-to certificate ... The certificate will be revoked only when this-and-this happens - when Palestine becomes Finland." This was the peak of cynicism: The man who was involved up to his neck in the Annex Research affair - the shell company for channeling huge contributions to the prime minister - is conditioning negotiations with the Palestinians on transforming them into the country ranked as least corrupt in a survey in which Israel was ranked in the unenviable 26th place.

The recommendation for a "diet," along with the edicts Israel is poised to impose on the Palestinian people, should have aroused a hue and cry among Israeli society. Even if we put aside the awful political inanity of pushing Hamas into a corner instead of giving it a chance to change its ways, and even if we ignore the fact that Israel plans to confiscate tax revenues that do not belong to it, the policy of the Kadima government raises questions about its humanity. Where do we get the right to abuse an entire people this way? Is it only because of our great power and the fact that the U.S. allows us to run wild and do whatever we want?

We stopped talking about morality a long time ago - after all, we are not living in Finland. Still, it would be good to ask: What country would dare to exacerbate the living conditions (which are so miserable in any case) of the residents of a territory under its occupation? What was the sin of the 4,000 lucky people from Gaza whom Israel still allowed to work within its borders, and to whom it is now closing the gates? Did the decision-makers call to mind the sight of these downtrodden people, crowded and humiliated at the Erez crossing on their way home from an exhausting day of work? More than half of all Palestinians are already living in poverty according to the last United Nations report, published in December. Last year, 37 percent had difficulties obtaining food and 54 percent of the residents of the "liberated" Gaza Strip cut back the amount of food they consume. Child mortality rose by 15 percent and the average unemployment rate reached 28 percent. To travel in the West Bank, the Palestinians have to traverse no fewer than 397 checkpoints and, in addition to this, Israel now wants to wield an even heavier hand.

If there is still a staying obstacle, it is only the constraint of image: Israel fears the spread of hunger only because of the world's reaction and not because of the bestiality it entails. Nonetheless, politicians here are competing with a range of extreme proposals, including cutting off electricity and water and abandoning millions of innocent residents. Is this also election spin? Is this what the Israeli voter wants?

What you see from there is truly not what you see from here: From the posh restaurants where Weissglas and his colleagues from the Hamas team dine, from the sophisticated road system on which they race along in their official vehicles, from the splendid concert halls and frequent trips abroad - you cannot see the suffering. From there, it is easy to impose more edicts with the flick of a tongue, without considering their frightful implications in the miserable alleyways of Jenin and ruined huts of Rafah. From there you can even joke about it.

Abbas warned that financial support had already begun to decrease to the Palestinian Authority, after Hamas crushed Abbas's long-dominant Fatah party in the Jan. 25 election.

"Unfortunately the pressures have begun and the support and the aid started to decrease. ...Therefore we are currently in a real financial crisis," Abbas told reporters in Gaza City.

Abbas confirmed that the United States asked the Palestinian Authority to return $50 million US in aid to ensure it does not reach Hamas. The European Union, which is the biggest donor to the Palestinian Authority, has threatened to stop funding unless Hamas recognizes Israel's right to exist, renounces violence and abides by peace accords.

Hamas is listed as a terrorist organization by the European Union, the United States and other countries. The group has carried out about 60 suicide bombings and other attacks against Israelis since 2000, but has been observing the informal ceasefire forged between Israel and the Palestinians in early 2005.

Israel halts funds, denouncing 'terrorist authority'

Israel's acting prime minister, Ehud Olmert, said the Palestinian government would be forming a "terrorist" regime dedicated to Israel's destruction, before his cabinet voted in favour of the sanctions.

"It is clear that with a majority for Hamas in parliament and with the formation of a government under the leadership of Hamas, the Palestinian Authority will become a de facto terrorist authority," Olmert said.

"And Israel cannot accept this."

The cabinet halted the monthly transfer of about $50 million US in tax and customs revenue that it collects each month at a Gaza border crossing and transfers to the Palestinian Authority.

The Palestinian government relies on the money to help pay the salaries of about 140,000 government workers. About a third of them work in the security forces.

Israel also decided to:

* Tighten security at the border crossings between Israel and the Gaza Strip.

* Ban the transfer of weapons and military equipment to Palestinian security forces.

* Withhold from Hamas parliamentarians the special privileges that Israel usually gives to Palestinian officials, allowing them to travel easily between the West Bank and the Gaza Strip.

* Pressure foreign donors to stop all financial aid to the Palestinian Authority.

However, the Israeli cabinet ministers did not adopt a harsh measure urged by security officials, which would have sealed off the Gaza Strip and blocked the flow of goods between Israel and Palestinian territories.

Olmert said Israel did not want to unduly punish the Palestinian people and would allow humanitarian aid to continue.

Abbas expected to ask Haniyeh to form cabinet

The sanctions are to take effect when the new Palestinian cabinet is set up.

Abbas was scheduled to meet on Monday with Ismail Haniyeh, the top Hamas leader in the Gaza Strip. On Sunday, Hamas formally nominated Haniyeh as its top choice for prime minister.

Abbas was expected to formally ask Haniyeh to form a cabinet, a process expected to take several weeks.

Both Abbas and Haniyeh on Sunday criticized some countries' crackdown after Palestinian voters handed 74 of the 132 parliament seats to Hamas and only 43 to Fatah.

"We are a free people. We've had democratic elections," Haniyeh told a news conference.

"This initiative is a real knife in the back," said Israel's Education Minister Meir Sheetrit. "What would Moscow say if we invited Chechen representatives to Jerusalem in response?"

But it would not be right to compare the Chechen and the Palestinian situations, if only because Chechnya is part of Russia, which the international community recognizes, while the Palestinian territory is occupied by Israel, as proceeds from UN Security Council resolutions.

The Israeli minister also forgets that Hamas has come to power in legitimate elections. The Palestinian people voted for it and gave it the right to form the government. The international community has indirectly recognized this right by accepting the results of the elections. Moscow is offended when other states receive people who have lost the right to represent the interests of Chechens or have never had this right. Chechnya has a legitimate parliament and president who are the only ones with the right to speak on behalf of the Chechen people who have elected them.

President Putin invited Hamas leaders to Moscow only after the organization won the parliamentary elections. His initiative cannot undermine the legitimacy of the Palestinian government or the stability of Palestine, unlike the actions of those who receive Chechen bandits in their capitals.

Hamas's victory is a fact that cannot be denied without denying also the results of the elections.

Israeli politicians accuse Moscow of acting contrary to the latest statement made by the Quartet of international intermediaries (Russia, the United States, the UN and the European Union). This statement on the results of the Palestinian elections was adopted in London on January 30. Israelis like to mention it, though in the past they preferred to ignore such documents, let alone the UN Security Council resolutions that run counter to Israel's interests. Moreover, Israel accepted the Roadmap for the Middle East settlement with 14 reservations. According to the Israeli interpretation of the latest statement by the Quartet, Moscow has no right to receive Hamas leaders.

In fact, the January 30 statement by the Quartet did not aim to boycott Hamas and did not even mention it. It says "future assistance to any new Palestinian government would be reviewed by donors against that government's commitment to the principles of nonviolence, recognition of Israel, and acceptance of previous agreements and obligations, including the Roadmap." Note the word "would" where Israel sees "must."

Moreover, there is no yardstick to judge Palestinians' actions because the new Palestinian government has not been formed yet. And there are no grounds for accusing Russia of betraying the Quartet. Russian diplomats said after President Putin had made public his initiative that talks with Hamas would be held within the framework of the Quartet's decisions and would aim, in part, to ensure the safety of Israel.

Therefore, Israeli hysterics over the Russian initiative can be explained only with internal political considerations. It is not clear, though, why those who denounce the Russian initiative say nothing about Hamas's talks with Egypt, or about Turkey's idea of mediating between Hamas and Israel. Israeli Defense Minister Shaul Mofaz has been to Egypt to discuss the regional situation with President Hosni Mubarak and to send Israel's demands to Hamas via Egypt. Why cannot Moscow act as an intermediary then?

One possible reason is that the Quartet, including the U.S. and the EU, will judge the prospects of dialogue with Hamas by the results of the Moscow talks. If Russian diplomats convince their American and European colleagues that dialogue is possible, it will become more difficult for Israel to neglect its obligations to Palestinians.

Israel does not mention that on January 30, the Quartet reminded the sides "of their obligations under the Roadmap to avoid unilateral actions which prejudice final status issues." This warning is directed primarily at Israel, which is pursuing a unilateral policy, which allows it to formalize ownership of disputed territories, under the pretext that it does not have a negotiating partner in Palestine. The international community would silently agree to this only if it admits that dialogue with Hamas is impossible.

And one more question: Why did the Israeli government talk with Fateh, which ruled Palestine before the elections, but denies this right to Hamas? The Fateh's militant branch is more active than Hamas's paramilitary groups, which mostly respect the truce agreement.

This does not mean that the international community should forgive Hamas for the terrorist attacks it had committed in the past. Russia makes no difference between the attacks in Moscow, Tel Aviv, London, New York or any other part of the world. It has never approved of such forms of political struggle, and it will discuss this issue with the Palestinian delegation. But if there is a chance that Hamas would abandon terror, why not use it? We could not imagine 20 years ago that Israelis would negotiate with the Palestine Liberation Organization, whose core is the Fateh party, but it has done it.

Moscow understands Israel's apprehension of Hamas. But the world should see that isolation would force Hamas to become more radical. If the West denies its assistance to it, it will seek other sponsors who would give money for terror, not creation. So far, the international community has a chance to influence Hamas's future policy. Changes may be slow or may not happen at all, but this does not mean we should stop trying. This is what Russia is doing - trying to lead the Middle East crisis out of the current deadlock.