The Israeli Cabinet on Sunday approved a halt in monthly transfers of tens of millions of dollars to the Palestinians, in the first response to Hamas taking control of the Palestinian parliament.

The decision came a day after a new Hamas-dominated Palestinian legislature was sworn into office. Israel had warned relations with the Palestinians would suffer the moment Hamas entered parliament. The group has killed hundreds of Israelis in suicide bombings and remains committed to Israel's destruction.

On Sunday, Hamas nominated Gaza lawmaker Ismail Haniyeh to be Palestinian prime minister, a widely expected move announced in a text message sent to reporters. Haniyeh is seen as a leader of the militant group's pragmatic wing and has good working relations with the rival Fatah movement.

Israel collects and transfers about $50 million in tax money for the Palestinians each month. The money is essential for the Palestinian Authority to meet its monthly payroll for about 140,000 workers.

The Israeli ministers also urged the international community to withhold most aid to the Palestinian Authority, though it said humanitarian assistance should continue. But they stopped short of more drastic measures, including sealing off the Gaza Strip, favored by security officials.

Acting Israeli Prime Minister Ehud Olmert ruled out all contact with Hamas, though he assured Israel had "no intention of hurting the humanitarian needs of the Palestinian people."

"Given the Hamas majority in parliament ... the Palestinian Authority becomes in effect a terror authority," Olmert told the Cabinet. "Israel won't agree to that."

Palestinian leader Mahmoud Abbas was expected later Sunday to formally give Haniyeh the task of putting together a new Cabinet. Haniyeh would then have three weeks to submit a government to Abbas for approval.

Addressing the parliament on Saturday, Abbas said he expected Hamas to honor existing peace accords with Israel and halt violence. Hamas leaders rejected those calls, but signaled a willingness to compromise.

Born in Gaza's Shati refugee camp, Haniyeh graduated from Gaza City's Islamic University in 1987 with a degree in Arabic literature and became a close associate of Hamas founder Sheik Ahmed Yassin.

Haniyeh was expelled by Israel to south Lebanon in 1992, returned to Gaza a year later and became the dean of the Islamic University. In 1998, he took charge of Yassin's office.

A pragmatist, he served as a liaison between Hamas and Palestinian Authority, established in 1994 and dominated by the rival Fatah movement.

He rose to prominence after Israel's assassinations in 2004 of Yassin and Yassin's successor, Abdel Aziz Rantisi. He has been a member of the political leadership of Hamas since the 1990s.