The United States and Israel agreed to keep a ban on financial aid to the new Palestinian government but a rift emerged over Washington's willingness to ease a year-old diplomatic blockade.
Israeli Prime Minister Ehud Olmert ruled out resuming talks on Palestinian statehood with President Mahmoud Abbas of Fatah and appealed to the international community to shun the government until it recognises Israel and renounces violence.
Israel has vowed to boycott the new government in its entirety, including non-Hamas ministers. But the US consulate in Jerusalem said Washington, in a shift in policy and a rare break with the Jewish state, would permit limited contacts on a case-by-case basis with ministers who are not members of Hamas.
Palestinians hope the partnership between Abbas's secular Fatah faction and Islamist Hamas will stop factional fighting and ease a crippling aid embargo that has increased poverty. In his first decree after formation of the unity government, Abbas appointed Hamas's long-time foe, Mohammad Dahlan, to oversee the divided Palestinian security forces.
At the government's inaugural meeting today in the Gaza Strip, officials said their goal was to quickly put an end to factional fighting that has killed more than 300 Palestinians in the past year.
"We know it is a difficult mission," the new Palestinian information minister, Mustafa al-Barghouthi, said.
Micaela Schweitzer-Bluhm, spokeswoman for the US consulate in Jerusalem, said the year-old US ban on direct aid to the Palestinian government would remain in place until it recognised Israel and renounced violence as demanded by the "Quartet" of Middle East mediators.
"This must continue to be the measure for any (financial) support," she said.
"There's no change in our assistance policy. But we remain committed to providing assistance to the Palestinian people and we'll continue to do that through the U.N. and other organisations."
Israel has also vowed not to hand over to the unity government tax revenues it has been withholding.
Mr Olmert said contacts with Mr Abbas would be limited to matters related to "the quality of life of the Palestinian population".
"The new government, as it has been declared and presented, limits our ability to conduct a dialogue with ... (Abbas) and narrows the range of issues which we might have been able to discuss in the coming period," he told his cabinet.
He said the new government's platform contained "very problematic elements", an apparent reference to its call for "resistance" against Israel in "all its forms".
While the unity government gives Mr Abbas authority to negotiate with Israel, Hamas would have an effective veto over any deal that emerges, dampening prospects for peace talks, Israeli officials said.
Ms Schweitzer-Bluhm said Washington was disappointed by what she called the new government's "missed opportunity to reinforce the Quartet's principles".
The change in US contact policy will bring Washington in line with Britain and other European powers that have signalled a willingness to hold talks at least with non-Hamas ministers.