Abbas called off the meeting because he saw no serious sign of Israel moving forward on the "road map", said a source close to the Palestinian premier on Tuesday.
The meeting was to have been the third bilateral meeting between the two prime ministers who last met in Jerusalem on 20 July before separate visits to Washington for talks with US President George Bush.
Abbas is due to meet later on Tuesday with Palestinian resistance groups who will outline their concerns at Israel's foot-dragging in the latest efforts to end the Palestinian-Israeli conflict.
Hamas leader Ismail Haniya said talks would focus on what he said were Israel's violations of a ceasefire called by Palestinian groups halting resistance attacks in June.
Palestinian groups say Israel has violated the truce by refusing to release the 6000 Palestinian detainees it holds, many without trial or charge.
On Sunday, Israel said it would free 442 Palestinian prisoners later this week.
Hundreds of Palestinians demonstrated across the occupied West Bank and Gaza Strip demanding for the release of detainees.
In other news, a 13-year-old Palestinian boy was killed in Gaza City when an unexploded device he was handling detonated in his hands.
Palestinians fear the barrier will
set the borders for a future state
Meanwhile, Israeli troops arrested 47 opponents of the "apartheid wall" it is erecting to cut off the occupied West Bank from Israel.
Israeli soldiers on Tuesday stormed a home in the occupied West Bank, detaining 34 foreign members of the International Solidarity Movement and six Israelis.
The protesters were protecting the house in an attempt to prevent Israeli bulldozers from razing the Palestinian owner's garden to build the barrier.
The wall will effectively prevent many West Bank farmers from reaching their fields and cut off families from each other. Palestinians fear it is an Israeli attempt to delineate the borders of a future Palestinian state.
In Washington, a senior US official said the Bush administration may punish Israel by withholding US loan guarantees if Israel continues with the construction of barrier.
"It is something that is being looked at," the official said on condition of anonymity.
"Real questions have been raised about the fence and we're discussing how we should express our concerns in a concrete way."
The official said the proposal was still being debated by the White House and the State Department and that no decision on it would likely be made before September.