Israel and the United Sates have reacted with caution to the announcement of a reconciliation agreement between Fatah and Hamas.

The longtime rivals revealed last night that they had reached a deal to form an interim government for the Palestinian Authority and to set a date for an election.

If the deal goes ahead, it will bring to an end more than five years of feuding between Fatah, the party of Palestinian President Mahmoud Abbas, and the terrorist organisation Hamas.

But Israel's Foreign Minister Avigdor Lieberman said Israel would not negotiate with a Palestinian government that included Hamas.

Mr Lieberman said: "Such an agreement is crossing a red line.

"The significance of the agreement is that terrorists will take hold of the West Bank. Hundreds of terrorists will flood the West Bank and therefore we need to prepare for a different situation."

Prime Minister Benjamin Netanyahu added: "[Fatah] can't have peace with both Israel and Hamas. Choose peace with Israel."

The Obama administration reiterated that if Hamas were to join a Palestinian government it would need to recognise Israel legitimacy and renounce terrorism.

Tommy Vietor, spokesman for the US National Security Council said: "The United States supports Palestinian reconciliation on terms which promote the cause of peace.

"Hamas, however, is a terrorist organisation which targets civilians."

He said: "To play a constructive role in achieving peace any Palestinian government must accept the Quartet principles and renounce violence, abide by past agreements and recognise Israel's right to exist."

Congresswoman Ileana Ros-Lehtinen, chair of the House Foreign Affairs Committee, said that the deal could call into question US aid to the Palestinian Authority. She said: "US taxpayer funds should not and must not be used to support those who threaten US security, our interests, and our vital ally, Israel."