The Israeli government has strongly condemned the new Palestinian unity government, rejecting any peace negotiations and authorising PM Benjamin Netanyahu to impose financial sanctions.
Netanyahu asserted in a statement that Palestinian President Mahmoud Abbas "said today 'yes to terror and no to peace," referring to the new government - which is backed by the Islamic militant group Hamas.
Israel considers Hamas, which rules the Gaza strip, a terrorist group. The Israeli cabinet said it would hold Abbas responsible for any attacks coming from Gaza.
Israel has in the past withheld tens of millions of dollars in taxes it collects each month on behalf of the Palestinians.
Earlier, Abbas praised the "end of a Palestinian division" as he swore in the unity government.
The new administration took the oath of office in Ramallah, the headquarters of government in the Israeli-occupied West Bank. Three ministers from Gaza were denied entry to the West Bank by Israel.
The Fatah-Hamas government was also criticised by right-wing economy minister Naftali Bennett who called it a "government of terrorists in suits" in a Facebook post.
""The government of terrorists in suits established by Fatah and Hamas, the very same organisation that in its charter has horrific sentences such as calling for 'killing the Jews who are hiding behind trees and stones,' is an illegitimate government," he wrote.