A senior Hamas leader has described Israeli plan to set new borders unilaterally by annexing Palestinian land as a 'declaration of war'.
The militant group's political leader in exile, Khaled Meshaal, told the AFP news agency the plan was intended to meet only Israel's security needs and would not bring about peace.
Acting Israeli Prime Minister Ehud Olmert has said he plans to set permanent borders for Israel by 2010.
But he said he would give Hamas time to reform, disarm and embrace past interim peace agreements before pursuing a unilateral solution.
Meanwhile, the European Union has warned it may cut funding to the Hamas-led Palestinian government if it fails to renounce violence and recognize Israel.
The EU has released €120 million for Palestinians since the January elections in which the militant Islamic group swept to power.
But the bloc has set out conditions in order to review funding once the new government is fully in place.
Hamas has recently presented proposals for forming a Palestinian coalition government with the Fatah party of President Mahmud Abbas, in the search for an elusive deal on sharing power.
