JERUSALEM (CNN) -- The Israeli security Cabinet declared Hamas-controlled Gaza a "hostile entity" Wednesday in response to continued Palestinian rocket attacks.
Members of Hamas' armed wing, Izzedine al Qassam, train in Gaza's Jabalya refugee camp Thursday.
The unanimous Cabinet vote represents a major escalation in the Israeli-Palestinian conflict.
Under a plan proposed by Israeli Defense Minister Ehud Barak, Israel would disrupt electrical supplies, reduce fuel shipments to a bare minimum to run hospital generators, and choke off shipments of goods to allow only essential food and medicine to enter Gaza. In addition, it will continue military operations "against terror organizations."
The ministers, however, voted not to disrupt the water supply to Gaza, the home of 1.4 million Palestinians.
Israel Radio reported that Hamas leader Ismail Haniya had met with a leader of Islamic Jihad to push for a halt in the firing of Qassam rockets into Israel.
Israeli Internal Security Minister Avi Dichter said the declaration would enable certain sanctions to be taken, but those sanctions would not cross "the red line when it came to humanitarian needs," he said in a radio interview.
An Israeli government statement said, "The Hamas organization is a terror organization that seized control of the Gaza Strip and turned into a hostile area. This organization carries out hostile actions against the state of Israel and its citizens and are responsible for this activity.
"In light of this it was decided to adopt the recommendations that the Defense establishment made which include continued military activity against the terror organizations.
"In addition there will be further limiting on the Hamas government in a way that will limit the transferring of goods to Gaza, reducing the supply of electricity and fuel and will limit the movement of people in and out of Gaza."
In recent months, Palestinian militants have fired hundreds of unguided and crudely made Qassam rockets into Israel, primarily at the southern Israeli city of Sderot.
Last week, a rocket landed in the middle of an army camp, wounding some 69 soldiers. Seven of them sustained moderate to serious wounds. E-mail to a friend