President Mahmoud Abbas swore in a Palestinian unity government on Monday in a reconciliation deal with Hamas Islamists that led Israel to freeze US-brokered peace talks.

Abbas, whose Palestinian Authority in the Israeli-occupied West Bank is dependent on foreign aid, appeared to be banking on Western acceptance - over Israeli objections - of a 16-member cabinet of what he described as politically unaffiliated technocrats.

Setting a policy in line with US and European Union demands, the Western-backed leader said his administration would continue to honour agreements and principles at the foundation of a peace process with Israel.

Hamas, which advocates Israel's destruction, has run the Gaza Strip since seizing the territory from Abbas's Fatah forces in a brief civil war in 2007. Numerous reconciliation efforts, largely brokered by Egypt, have failed over power-sharing.

"Today, and after announcing the government of national unity, we declare the end of division that caused catastrophic harm to our cause," Abbas said, voicing sentiments widely shared by Palestinians, as ministers took the oath of office in a ceremony in the West Bank city of Ramallah.

Israeli Prime Minister Benjamin Netanyahu has said his government would shun a Palestinian administration supported by Hamas, and he urged world leaders not to rush into recognising it. Israel barred three Gaza-based ministers from travelling to the West Bank to be sworn in.

Ismail Haniyeh, the outgoing Palestinian prime minister in Gaza, said in a speech in the enclave that it was "a historical day" that closed a "chapter of seven years of division".

Hamas television referred to Haniyeh as a "former prime minister", in deference to the current West Bank-based holder of the post, Rami Al-Hamdallah.

But in his address, Haniyeh spoke of pursuing "resistance by all forms", an apparent reference to actions that include armed conflict with Israel, and he said the unity deal meant that Hamas's militia, the Qassam Brigades, "became an army today".

ISRAELI SANCTIONS?

In the absence of Fatah forces in Gaza, Hamas will effectively retain its security grip in the territory, where in addition to the 25,000-member Qassam Brigades, the Islamist group also controls 20,000 other armed personnel.

Netanyahu called his security cabinet into special session to consider imposing economic sanctions against the new Palestinian administration.

Netanyahu's finance minister, Yair Lapid of the centrist Yesh Atid party, cautioned against any rash Israeli moves.

"In the coming weeks we will have to study this government and decide where we proceed from here. This is not a time for fulmination, but rather, for sobriety and care, as much as is possible," Lapid said at a meeting with Yesh Atid lawmakers.

Abbas said on Saturday that Israel "informed us ... they would boycott us if we announced the government".

Israel withheld some tax revenues from the Palestinian Authority in retaliation for his signing in April of international conventions and treaties after the Netanyahu government reneged on a promised release of Palestinian prisoners.

The peace talks, which began in July, had been going nowhere, with divisions deep over Israeli settlement building in occupied land Palestinians seek for a state and Israel's demand that Palestinians recognise it as a Jewish state.

On Sunday, US Secretary of State John Kerry, who spearheaded the peace efforts that Israel froze when the unity deal was signed on April 23, spoke by telephone with Abbas and voiced his concern about Hamas's role in the government, State Department spokeswoman Jen Psaki said.

"(Kerry) stated that the United States would monitor the situation closely and judge any government based on its composition, policies and actions," Psaki said.

Israel, the United States and the European Union regard Hamas as a terrorist group.

Abbas has been keen to assure Western donor countries he will remain the key Palestinian decision-maker and that security coordination between his forces and Israel will continue.

Both Fatah and Hamas see benefits to a unity pact.

With a strict blockade imposed by neighbours Israel and Egypt, Hamas has been struggling to prop up Gaza's economy and pay its 40,000 employees. Abbas wants to shore up his domestic support since the peace talks with Israel collapsed. - Reuters