Abbas Obama Netanyahu Israel Palestine Middle East Kerry Ramallah Tel Aviv
US President Barack Obama meets with Palestinian President Mahmoud Abbas during the United Nations General Assembly in New York    Reuters

The United States has said it plans to work with the newly-formed Palestinian unity government after an agreement between the Fatah and Hamas factions was sworn in.

The unity government was instituted by Palestinian Authority President Mahmoud Abbas in Ramallah after a reconciliation deal was struck with Hamas Islamists who control the Gaza Strip.

US State Department spokeswoman Jen Psaki said the US will continue to fund the Palestinian Authority but will monitor its policies and re-evaluate its approach if needed.

"Based on what we know now we intend to work with this government but will be watching closely to ensure that it upholds principles that President Abbas reiterated today," Psaki said at a briefing.

"But we will continue to evaluate the composition and policies of the new government and calibrate our approach accordingly."

Psaki added that the new government was an interim technocratic government which will adhere to the terms of the Quartet - to recognise Israel, reject terror, and respect previous agreements.

Moments before Psaki's statement, US Secretary of State John Kerry called Benjamin Netanyahu to inform him of US intentions.

Israel condemned Washington's reaction to the unity government, claiming that the Obama administation was sanctioning terrorism by continuing to work with and fund a Hamas-related body.

"We are deeply disappointed by the comments of the (U.S.) State Department regarding working with the Palestinian unity government," an unnamed government official said.

"This Palestinian government is a government backed by Hamas, which is a terror organisation committed to Israel's destruction," the official continued.

In a statement, Israel's security cabinet said they would now hold Abbas responsible for "all actions that harm the security of Israel originating from Judea, Samaria and the Gaza Strip."

"The agreement with Hamas makes Abu Mazen [Abbas] directly responsible for the terrorism emanating from Gaza."

The interim government is being put in place to prepare for elections set to be held within six months.