Israel rules out military response to bombing
Interim Israeli Prime Minister Ehud Olmert and key cabinet ministers instead revoked the Israeli residency rights of three Hamas lawmakers living in Jerusalem.
Monday's blast, which killed nine other people and wounded dozens outside a packed Tel Aviv fast-food restaurant, was carried out by a bomber from the Islamic Jihad militant group.
However, Hamas leaders defended the attack as a justified response to Israeli "aggression" against the Palestinians.
Mr Olmert and senior advisers and security chiefs met for two hours yesterday to weigh a response.
The group decided to hold Hamas responsible because it did not denounce the bombing a sharp departure from the previous Palestinian leadership's immediate condemnations of such attacks.
"Israel sees the Palestinian Authority as responsible for what happened yesterday," senior Israeli Foreign Ministry official Gideon Meir said.
Participants said Mr Olmert decided against launching a large-scale military operation and blocked a proposal to declare the Palestinian Authority an "enemy entity." Such a declaration would have paved the way for direct strikes against the Palestinian Authority.
Until now, economic and political boycotts have been Israel's main tools against the Hamas government.
At the White House, President George W Bush was asked by a reporter whether he had encouraged Israel to show restraint in its response.
"I have consistently reminded all parties that they must be mindful of whatever actions they take and mindful of the consequences," Mr Bush said.
Earlier, Israel's UN ambassador, Dan Gillerman, told the UN Security Council that the Hamas government's verbal support for the bombing, as well as recent statements by Iran and Syria, "are clear declarations of war and I urge each and every one of you to listen carefully and take them at face value".
Mr Gillerman said a new "axis of terror" Iran, Syria and the Hamas government was sowing the seeds of the first world war of the 21st century.
Israeli security chiefs also have proposed tightening travel restrictions, including making it harder for Palestinians to move between different parts of the West Bank and extending a blanket closure of the West Bank and Gaza.
The bomber came from the northern West Bank and the military planned to step up raids in that area. The army also proposed intensifying targeted killings of Islamic Jihad activists.
It was not immediately known whether those proposals were adopted yesterday.
In an initial response, Israeli aircraft attacked an empty metal workshop in Gaza City early yesterday, causing no injuries. The army said the workshop was used by the Popular Resistance Committees militant group to manufacture homemade rockets launched at Israel.
Monday's bombing was the first inside Israel since Hamas came to power at the end of March. Islamic Jihad threatened more attacks, saying it had trained 70 more potential bombers both men and women.
Islamic Jihad, which is believed to be funded in part by Iran, refuses to observe a truce. Hamas officials have said they would not try to stop or arrest members of other militant groups trying to carry out attacks.
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