Palestinian President Mahmoud Abbas swore in a national unity government Monday, formally ending a crippling seven-year split with his Islamic militant Hamas rivals but drawing Israeli threats of retaliation.

The formation of the unity government and Israel's tough response are part of a wider competition between Abbas and Israeli Prime Minister Benjamin Netanyahu for international support since the collapse of U.S.-led peace talks between them in April.

Abbas praised the 17-member unity government, made up of technocrats backed by Hamas and his Fatah movement, as a milestone.

"This black page in our history has been turned forever and will never come back," he said, referring to the Palestinian split that broke open with the Hamas takeover of the Gaza Strip in 2007. For seven years, the rivals ran separate governments, with Hamas in Gaza and Abbas ruling autonomous areas of the West Bank.

Netanyahu said the new government should be shunned because it leans on support from Hamas, a group labeled as terrorist by the West. Abbas "said yes to terrorism and no to peace," Netanyahu said after a meeting with his Security Cabinet.

Abbas said his new Cabinet opposes violence and recognizes Israel, complying with longstanding conditions the West has set for dealing with Palestinian governments. Hamas has rejected such

conditions, but Abbas said he is in charge of the government program.

Western response mixed

Canada’s Foreign Affairs Minister John Baird issued a statement saying he has "concerns" with the new Palestinian government’s connection to Hamas, listed as a terrorist organization under Canadian law.

Baird said Canada will only deal with a Palestinian government that renounces terrorism and recognizes Israel's right to exist.

Border skirmish kills 1

Meanwhile, the Israeli military announced it shot and killed a Palestinian man after he opened fire at them at a West Bank checkpoint.

The military says a police officer at the crossing was wounded in the exchange.

In Washington, U.S. State Department spokeswoman Jen Psaki said America intends to work with the new Palestinian government despite Israel's concerns. Psaki also said U.S. Secretary of State John

Kerry called Netanyahu to relay the U.S. position, without offering details.

Psaki said the U.S. will continue to send aid to the Palestinians, but will closely watch what she called the "interim technocratic government."

Israeli officials said they were "deeply disappointed" by the U.S. position, saying Washington should instead call on Abbas to end the alliance with Hamas and resume peace talks with Israel. The officials spoke on condition of anonymity because they were not authorized to discuss the matter with the media.

The U.S. decision also drew criticism from within its own government

Republican Kay Granger, who chairs a House Appropriations subcommittee on U.S. foreign operations, said Palestinian aid was now "off the table." The panel's top Democrat, Nita Lowey, was almost as strong, saying the deal puts funding "in jeopardy.”

The EU has said it welcomes unity and would continue funding any government that meets the conditions.

In an Associated Press interview, the EU's top envoy to the U.S. said Europe was prepared to work with a government backed by Hamas.

"We never said we would not," Ambassador Joao Vale de Almeida said. "It's a question of substance rather than the question of composition of the government."

New government faces tough decisions

Despite optimism on the Palestinian side, the new Cabinet faces many difficulties. Key disputes, including over how to meld rival security forces in the West Bank and Gaza, have not been resolved.

Palestinian dependence on foreign aid only will increase because the new government will be even more expensive to maintain. Abbas has to blend a total of some 200,000 employees of two administrations.

'It is not time for harsh words, but for caution and stability'- Yair Lapid, senior Israeli cabinet minister

Israel brushed off Abbas' assurances about the pragmatic nature of the new government. The Security Cabinet said Israel would not hold peace talks with such a government and authorized Netanyahu to impose financial sanctions.

It also said Abbas would be held responsible for any rocket fire out of Gaza. Hamas has killed hundreds of Israelis in attacks over the years and launched hundreds of rockets from Gaza, but has largely observed an informal truce with Israel in recent years.

Abbas "has forged a pact with Hamas, an organization which has been declared a terrorist organization in the U.S., Europe, Egypt and throughout the world," Netanyahu said. "The international community needs to treat it accordingly."

Israel has in the past withheld tens of millions of dollars in taxes it collects each month on behalf of the Palestinians, and it is possible Netanyahu will take similar action to punish Abbas.

But more centrist Israel politicians urged the government not to rush judgment.

Yair Lapid, a senior Cabinet minister, said Israel would have to study the new Palestinian government in the coming weeks before making a decision. "It is not time for harsh words, but for caution and stability," he said.

Abbas, Hamas had incentives to fix relationship

The formation of the unity government is the most significant step yet toward ending a political split that has weakened the Palestinian case for a state in the West Bank, Gaza and east Jerusalem, lands Israel captured in 1967.

Repeated reconciliation attempts have failed, even though the split is unpopular among Palestinians. In recent months, both factions had greater incentives to repair ties.

Hamas is in the midst of a major financial crisis due to a border blockade imposed by Israel and Egypt, while Abbas is in need of a political accomplishment following the collapse of peace talks with Israel in late April.

Abbas was seen as having the upper hand in the unity negotiations, largely because Hamas has run out of options due to its financial crisis.

The Cabinet is to be temporary and prepare for general elections in 2015, though there are signs that neither side is eager to face presidential and parliamentary elections.