LONDON – The signing of the Hamas-Fatah unity deal in Cairo is a setback for peace – and an advancement for terrorism – Prime Minister Binyamin Netanyahu told reporters in London on Wednesday.

“What happened today in Cairo is a tremendous blow to peace and a great victory for terrorism,” he said. “Three days ago, terrorism was dealt a resounding defeat with the elimination of Osama bin Laden. Today, in Cairo, it had a victory.”

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In signing this deal, Palestinian Authority President Mahmoud Abbas had “embraced” an organization that had condemned the American operation against the al-Qaida leader and called him a “great martyr,” the prime minister said.

“When he embraces this organization, which is committed to Israel’s destruction and fires rockets on our cities, this is a tremendous setback for peace and a great advancement for terror,” Netanyahu said.

“What we hope will happen is that we find peace, and the only way we can make peace is with our neighbors who want peace. Those who want to eliminate us, those who practice terror, are not partners for peace.”

He spoke before a meeting set for late Wednesday night with British Prime Minister David Cameron.

Israeli officials said Netanyahu hoped to persuade Cameron to promise that the UK would not support the deal unless Hamas accepted the three principles set out by the Quartet for international recognition of the Islamist movement: that Hamas recognize Israel, renounce terrorism and abide by the PLO’s agreements with Israel.

Hamas refused to do so.

On Thursday, Netanyahu is expected to make the same request when he meets with French President Nicolas Sarkozy.

A spokesman for UN Secretary-General Ban Ki-moon said on Wednesday that Ban had always supported efforts for Palestinian unity, but wanted them to play out within the framework of the Quartet’s principles – and urged all Palestinian factions to adhere to them.

Still, he sent Robert Serry, the UN special coordinator for the Middle East peace process, to Cairo for Wednesday’s ceremony.

The European Union was even more cautious about supporting the Fatah-Hamas agreement and sent only a councilor from its embassy in Cairo.

The US did not have any formal representative at the ceremony.

Speaking on Channel 2 on Wednesday evening, Middle East Quartet envoy Tony Blair gave a plug for Palestinian unity, but only with certain conditions attached.

He said he was “in favor of Palestinian unity. It is essential for peace, but it must be unity on the right terms; it must be genuine unity.”

Blair added, however, that the contrasting Palestinian reactions to the killing by US forces of Osama bin Laden earlier this week “expresses what the issue is” regarding the worrying aspects of the Fatah-Hamas reconciliation agreement.

“[PA Prime Minister Salam] Fayyad said the death was good news and [Hamas Prime Minister Ismail] Haniyeh said he [bin Laden] was a ‘warrior.’” “If Hamas was changing... in peaceful means... this would be positive... but you just need to look at Haniyeh’s comments” to understand this has not been the case, Blair said.

As for Netanyahu’s comments that the agreement was “a victory for terror,” Blair said, “I think the reaction of the Israeli government is justified. For us in the international community, the door is open to come into this [peace] process – but only if conditions are made.”

He criticized Israel’s decision to stop transferring tax funds to the PA, now that Hamas is joining the PA government.

“In respect to the [tax] revenue made on behalf of the Palestinians, it should be given to them,” Blair said.

He also reiterated his objection to a unilateral Palestinian declaration of statehood.

“The only way you will get a Palestinian state is by negotiation,” Blair said.

But Netanyahu’s largest coalition partner, Israel Beiteinu, said on Wednesday that the time for negotiations had passed. It announced that in light of the agreement between Fatah and Hamas, it would demand that the government cease all contact between Israel and the PA. The party called to stop various inter-ministerial initiatives with the PA, as well as the transfer of money to its government.

“It is impossible to expect the State of Israel to transfer money to Hamas – and in doing so, to fund terrorism activities against Israel’s citizens,” Beiteinu said.

“Those who declared bin Laden to be a Muslim freedom fighter, as Hamas Prime Minister Ismail Haniyeh did, and those who refuse to allow the Red Cross to visit Gilad Schalit cannot be partners in negotiations, either directly or indirectly.”

Separately, Deputy Foreign Minister Danny Ayalon (Israel Beiteinu), who is in Eastern Europe, called on the European Union to threaten the Palestinians with financial consequences, should they fail to follow the Quartet’s principles.

“As the largest funders of the Palestinian Authority, you have a heavy responsibility to make it clear to the Palestinians that failure to comply with the Quartet’s conditions will be met with sanctions,” Ayalon said.

He spoke after meeting with Estonian Foreign Minister Urmas Paet.

Rebecca Anna Stoil contributed to this report.

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