The cabinet on Sunday stopped short of adopting a blanket ban that Israeli defence officials had proposed on the entry of Palestinian workers to Israel and on Palestinian travel, through its territory, between Gaza and the occupied West Bank.
Spelling out action Israel will take, officials said security checks will be stepped up at crossing points between Israel and Gaza and the movement of Hamas members restricted in West Bank territory under Israel's control.
Israel will appeal to international donors not to transfer funds to the Palestinian Authority once Hamas forms a government, but will allow money in for humanitarian purposes, the officials added.
Nabil Abu Rudainah, a spokesman for Mahmoud Abbas, the Palestinian president, called the Israeli measures harmful.
An Israeli government source said: "We did not want to make it too hard for the Palestinians or take steps now that would prevent us from taking harsher measures later.
"We also took international pressure into consideration. We want to maintain international sympathy for Israel's position."
US officials had publicly cautioned Israel against edicts that would make life more difficult for ordinary Palestinians.
In any case, restrictions on Palestinian employment and travel would have been largely symbolic, since only a few thousand people would be affected following strict limits Israel imposed after a Palestinian uprising began in 2000.
Israel will halt the payment of customs duties it collects on behalf of the Palestinian Authority, worth about $50 million a month.
A move was described as a "silent genocide" by Hamas.
"Mass starvation is mass genocide, it is a silent holocaust"
Almost all Palestinian exports from Gaza must pass through Israeli crossings.
Nayef Rajoub, a prominent Hamas leader who is likely to assume a ministerial portfolio in the new government, accused Israel of carrying out a "silent genocide against millions of men, women and children" in the occupied Palestinian territories.
Speaking to Aljazeera.net on Sunday, Rajoub described decisions by the Israeli government to stop transferring Palestinian tax returns to the PA as "theft in broad daylight".
"Israel will bear the full responsibility for this legal and moral crime against the Palestinian people," he said.
No Hamas contact
Earlier on Sunday, Ehud Olmert, the acting Israeli prime minister, ruled out all contacts with the new Hamas-led Palestinian legislature.
A Hamas-dominated legislature
has been sworn into office
Olmert made the comments to the Israeli cabinet, which met a day after the new Hamas-dominated Palestinian legislature was sworn into office.
Olmert asked the cabinet to consider a series of economic sanctions against the Palestinians.
Israel has said that the moment Hamas enters parliament, relations with the Palestinians will be affected. But Olmert said Israel will allow humanitarian aid to reach the Palestinians.
"Given the Hamas majority in parliament ... the Palestinian Authority becomes, in effect, a terror authority," he said.
"Israel won't agree to that."
Series of measures
Israeli officials last week said they planned a series of measures to crush the already battered economy of the Gaza Strip in response to Hamas's electoral victory.
Olmert told his ministers that Israel "won't compromise with terror" and ruled out any contacts with a government in which Hamas participates.
"On the other hand, we have no intention of hurting the humanitarian needs of the Palestinian people," he said.