Israel says it is suspending security contacts with the Palestinian Authority after the killing of three Israeli settlers in the West Bank.
Foreign ministry spokesman Mark Regev told Reuters "defensive action would be taken on the ground", and contact would be suspended with the Palestinians.
Palestinian militants are believed to have carried out Sunday's attack, informs BBC.
The attacks renew international pressure on Palestinian leader Mahmoud Abbas to crack down on militants. Abbas is to meet later this week with Washington with U.S. President George W. Bush.
Abbas has been reluctant to take harsh measures against militants. Involvement of gunmen with ties to Fatah Sunday's attacks would underscore his failure to impose control, whether by force or by persuasion.
Palestinian negotiator Saeb Erekat said the shootings were "unfortunate" and accused the gunmen of trying to sabotage efforts to revive peace talks.
He urged Israel to reconsider the travel restrictions and suspension of contacts, saying "angry messages, collective punishment and violence will just add to the complexities."
Erekat said Israeli negotiators failed to show up for a meeting Sunday evening on the reopening of the Rafah terminal on the Gaza-Egypt border. The opening of the crossing is crucial for the economic recovery of Gaza.
Mark Regev said all contacts have been halted. "In Israel, we have no desire to return to a reality of daily attacks against Israeli civilians," Regev said. "We want to send a very strong and sharp message to the Palestinians, and the temporary suspension of talks is that message," reports the AP.