June 17 (Bloomberg) -- Palestinian President Mahmoud Abbas swore in a new Cabinet that excludes the Islamic Hamas party, seeking an end to a yearlong embargo by international donors.

Abbas and his newly named prime minister, Salam Fayyad, swore in 11 ministers today in a ceremony broadcast live from the West Bank town of Ramallah. Abbas said his emergency government was the only legal authority in the West Bank and Gaza. Hamas, now in control of Gaza, refuses to recognize Abbas's decrees.

``This new government is all what we could do after the coup against the Palestinian Authority led by Hamas,'' Abbas said in comments broadcast live by Palestinian television. ``The new government will work to lift the international embargo.''

Hamas, an Islamic movement regarded as terrorists by the European Union and U.S., seized control of the Gaza Strip last week. That prompted Abbas to dissolve the unity government his Fatah movement formed with Hamas three months ago. Hamas Prime Minister Ismael Hania has refused to step down.

Peace talks between Israel and the Palestinians stalled after Hamas, sworn to Israel's destruction, won elections in March 2006. International aid was cut off, and Hamas and Fatah gunmen often clashed on the streets of Gaza. More than 130 people died last week in Gaza street battles, according to the Palestinian Health Ministry.

Rocket attacks on Israel by militant groups in Gaza have stopped since Hamas took control. Still, at least two Katyusha rockets were launched today from Lebanon at the northern Israeli town of Kiryat Shemona, the Israel Defense Forces said. The rockets caused damage but no injuries.

Peace Talks

The U.S. and European Union have supported Abbas since he dismissed Hamas's Hania. The new government meets for the first time tomorrow. Israeli Prime Minister Ehud Olmert said earlier today that he deemed the new government an ``opportunity'' for resuming peace talks.

``The Palestinian Authority has changed, and we are going to do everything we can to take advantage of the opportunity,'' Olmert told reporters today as he left for talks with U.S. President George W. Bush. ``A Palestinian government that does not include Hamas can be a partner.''

Abbas today outlawed Hamas's security force and militias, which he said carried out an ``armed rebellion.''

Abbas's new cabinet includes only one Fatah member, Interior Minister Abdel Razaq al-Yahya, who will be responsible for security forces. All the other posts went to independent lawmakers and include two women and two Christians. A further three ministers will be named later.

Restore Security

Fayyad, who will also serve as finance and foreign minister, held the treasury position in previous cabinets. An independent lawmaker, he is a former World Bank and International Monetary Fund official. He was born in 1952. After the swearing-in ceremony he said his biggest priority was to restore security.

Fatah is now the dominant power in the West Bank, with its 2.5 million residents, while Hamas rules in the Gaza Strip, which is home to about 1.5 million people. The two regions are separated by 45 kilometers (29 miles) of Israeli territory.

The Palestinians need ``not a new government, but to reestablish dialogue between Fatah and Hamas,'' said Basem Ezbidi, a professor of political science at the West Bank's Birzeit University.

``What Abbas is trying to do is to show, perhaps a little too late, a sense of leadership,'' Ezbidi said by phone. ``The government today is an act of convenience. It doesn't have any real chance of functioning.''

Food Prices

In Gaza, food prices escalated, with residents joining long queues to buy supplies. Dor Energy in Israel Ltd. halted gasoline supplies to Gaza today, although it will continue to provide fuel to the territory's power plant. In New York before a meeting with UN Secretary-General Ban Ki-Moon, Olmert pledged to continue to supply Gaza with electricity.

Hundreds of Palestinians gathered at the Erez crossing point between Gaza and Israel today, seeking to leave the Palestinian territory, a spokesman for the Israel Defense Forces said by phone, speaking on condition of anonymity. A ``small'' number are being allowed through, he added.

Hamas gunmen installed checkpoints about 200 meters from the crossing and checked every car for members of the Fatah party, a secular and nationalist movement.

Ehud Barak, who is expected to take over as Israeli defense minister tomorrow, plans an offensive against Gaza within the next several weeks to destroy Hamas's military assets, the London-based Sunday Times reported, citing military officials it didn't name.

To contact the reporter on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.netSaud Abu Ramadan in Gaza City through the Jerusalem bureau at .

Last Updated: June 17, 2007 12:52 EDT