The Jerusalem government decided to respond to the repeated rocket attacks launched by Palestinian militants on Israeli territories neighbouring Gaza and announced Wednesday it will impose economic sanctions against the Hamas-ruled territory.

Israel said Gaza is a “hostile entity” and drastic sanctions will soon be imposed in retaliation for the heavy rocket-fire targeting Israeli settlements.

The electricity and fuel supplies will be slashed, while cargo crossings will limit the flow of commercial goods, Israeli officials said Wednesday after a meeting of the security cabinet.

“The sanctions will be enacted following a legal examination, while taking into account both the humanitarian aspects relevant to the Gaza Strip and the intention to avoid a humanitarian crisis,” an official statement said.

Hamas criticized the measure saying it’s a “collective punishment” and a clear “declaration of war.”

US Secretary of State Condoleezza Rice, who is on a two-day visit to the region, supported Israel’s decision, saying “Hamas is indeed a hostile entity and it is a hostile entity for the United States as well.”

In a press conference held with Israeli Foreign Minister Tzipi Livni she outlined that the US “will not abandon the innocent Palestinians in Gaza.”

Livni said Israel will no longer supply “needs which are more than the humanitarian needs” to the “hostile entity.”

Israeli cities and villages adjacent to Gaza have been targeted by more than 164 home-made rockets since mid-June, when Hamas ousted rival Fatah security forces from the salient.

Media reports said Hamas leader and self-proclaimed prime minister Ismail Haniya met with representatives of the militants and asked them to cease this constant rocket attacks in order to prevent Israel from implementing sanctions.

Since the rocket fire began, twelve Israelis have been killed and several injured, as rockets continue to land almost every day in Israeli territories, wreaking havoc among the population.

Government officials pressured Prime Minister Ehud Olmert to retaliate and deploy military troops in the impoverished salient to capture the militants responsible for these reprehensible acts.

The latest developments sparked discontent among Hamas officials, a spokesman saying the decision “is a clear indication of military escalation against Gaza.”

Meanwhile, Condoleezza Rice is preparing the ground for a conference that will take place in November and aims at offering conclusive solutions to the Israeli-Palestinian conflict.

Rice is scheduled to meet with other Israeli and Palestinian officials, after holding a first round of discussions with Livni on Wednesday.

During her visit she could mediate the recent disputes emerged, which threaten to disrupt the peace summit. Aides of Palestinian President Mahmoud Abbas said the leader could boycott the meeting if Israel continues to dodge a binding pact that would represent the backbone of a peace agreement.

Several Arab states have also threatened to shun the summit if preliminary discussion between Israeli and Palestinian representatives fail to provide conclusive solutions that could be implemented.

The lack of information regarding the conference’s participants, agenda and date have also been criticized by both sides. Rice said no one has been invited yet, but the issue will be addressed soon.