Palestinian Authority caretaker Prime Minister Ismail Haniyeh from Hamas, center, introduces new unity government cabinet ministers. At left is Fatah lawmaker and Deputy Prime Minister designate Azzam al-Ahmed and at right is independent lawmaker and Information Minister designate Mustafa Barghouti. The unity government is to be presented to parliament by Haniyeh for a vote of confidence Saturday.

Jerusalem ? The Islamic militant Hamas and its Fatah rivals forged a unity government Thursday to end more than a year of political wrangling, isolation and bloodshed. Israel quickly rejected the new leadership, saying it failed to recognize the Jewish state.

Prime Minister Ismail Haniyeh of Hamas said he hoped the government would “launch a new era” for the Palestinians, putting an end to lethal infighting while satisfying international demands ahead of a crucial Arab summit in Saudi Arabia at the end of the month and a visit to the region this weekend by Secretary of State Condoleezza Rice.

Israel urged its Western allies to maintain an aid embargo imposed after Hamas won election in January 2006 and set up a government by itself.

Initial U.S. and European reaction to the new Palestinian team was cool, while Russia was relatively upbeat.

The West cut off aid to the Palestinians when Hamas took power, labeling it a terror group and forcing it to agree to bring Fatah, the movement of moderate President Mahmoud Abbas, back as a junior partner. Both sides said the main goal was to stop clashes that have taken more than 140 lives in recent months, but restoration of aid and resumption of the peace dialogue with Israel remained high priorities.

At stake is about $1 billion in frozen aid. The West is unlikely to lift the sanctions unless it is convinced the new government is sufficiently moderate.

A dormant Saudi peace plan from 2002 is expected to resurface at the March 28-29 Riyadh summit, putting pressure on Israel to respond. The plan offers Israel recognition if it withdraws from the West Bank and east Jerusalem, and refers to the right of Palestinian refugees from the 1948-49 Mideast war and their descendants to return to their homes.

Israel has said parts of the plan are worthy of consideration, but it rejects a full withdrawal from the territories and return of refugees. However, as long as Israel has international backing to boycott the Palestinian government, it would not be put to the test.

Israeli officials quickly dismissed the Hamas-Fatah government as unacceptable, saying its platform does not accept the three international demands: recognizing Israel’s right to exist, renouncing violence and accepting previous peace accords. The so-called Quartet of Mideast mediators – the U.S., the European Union, the U.N. and Russia – posed those requirements for restoring aid, but they also are seen as conditions for resuming peace negotiations.