Palestinian president Mahmoud Abbas swore in his new cabinet Sunday and immediately outlawed the rival Hamas movement's fighters after their bloody seizure of power in Gaza.

The moves further seal the Palestinian divide sparked by the Islamist movements takeover of the impoverished territory, which is completely cut off from the outside world and fears of a humanitarian crisis are mounting.

Adding to the tensions, Israel troops moved into the north of the Gaza Strip - now an Islamic enclave on the Jewish state's doorstep - in what deputy defense minister Ephraim Sneh said was a "preventative" action.

After swearing in the new emergency cabinet headed by Prime Minister Salam Fayyad, Abbas swiftly took aim at Hamas.

"The executive force and Hamas militias are declared outside the law for having carried out an armed rebellion against Palestinian legitimacy and its institutions," according to a decree issued by the Fatah leader.

"Anyone whose ties with these groups is proven will be punished in accordance with the laws under the state of emergency," it said.

Hamas, the Islamic Resistance Movement whose fighters overran Fatah strongholds in Gaza after a week of bloody battles, dismissed the new government as "illegitimate."

Palestinian officials hope, however, that the creation of the emergency cabinet without Hamas will lead to the lifting of a crippling Western aid boycott.

Israeli Prime Minister Ehud Olmert, now in the United States, said he will work with the new government as a partner for peace.

The appointment comes amid a continuing Palestinian power struggle, with masked Fatah fighters storming parliament in the West Bank and ransacking Hamas-linked institutions Saturday, while Hamas militants hunted out Fatah men and looters rifled through fallen bastions in the Gaza Strip.

The tit-for-tat revenge attacks stoked fears the deadly factional violence could spread to the West Bank, which remained largely free of the Gaza bloodletting over the past few months.

Hamas - regarded as a terror group by Israel and the West - routed forces loyal to Abbas from Gaza Friday after days of gunbattles that left more than 110 people dead, creating what the Israeli press dubbed "Hamastan."

Abbas, who enjoys the support of the West, declared a state of emergency and sacked the Hamas-led unity government, naming Fayyad, a respected former finance minister and World Bank economist, as prime minister.

"We insist on organic unity, both administrative and political, of the two parts of the homeland, the Gaza Strip and the West Bank," Fayyad said in televized remarks moments after taking the oath of office.

Hamas' takeover of Gaza, branded a military coup by Abbas, has effectively split the Palestinians into two separate entities in Gaza and the West Bank, making their aspirations of an independent state an ever more distant dream.

But the end of the three-month-old unity government has given Abbas the opportunity to appoint a new cabinet in the hope of ending the aid blockade.

The United States and European Union halted direct aid to the Palestinian Authority after Hamas formed a government following its shock election victory over Fatah in January 2006.

A senior Palestinian official said the US government has indicated it will resume aid once the new cabinet took office, but a State Department spokeswoman in Washington said no decision had yet been made.

With Gaza sealed off from the outside world by Israel, there are fears of a humanitarian crisis in the tiny strip of land, home to about 1.5 million people and one of the most overcrowded places on earth.

Queues of people were lined up outside bakeries and supermarkets, as frantic residents stocked up on food, fearful of shortages if Israel keeps all border crossings closed.

"Israel must reinforce the isolation of the Gaza Strip and not let anything pass except electricity and water," Israeli infrastructure minister Benjamin Ben-Eliezer told army radio, which reported that petrol supplies had been cut.

But Israel indicated its support of Abbas's new cabinet and suggested it could release several hundred million dollars owed to the Palestinians.

"A Palestinian government which is not a Hamas government is a partner and we will cooperate with it," Olmert said as he left Israel for the United States where he will meet President George W. Bush.

"A new reality has been created during these past days which we haven't known during the long diplomatic efforts accompanying the evolution of the Palestinian Authority, and we have the intention of working full-tilt to seize this opportunity," he added.

A senior Israeli official has said the Jewish state was willing to release hundreds of millions of dollars in custom revenues, which it withheld following Hamas' election victory, if the new cabinet agrees to recognize Israel, renounce violence, and agree to abide by past peace deals.

The so-called Quartet of international mediators for Middle East peace - the United States, European Union, United Nations, and Russia - have offered their "full support" to Abbas.