Israel on Thursday was surprised and infuriated by the reconciliation agreement between Hamas and Fatah particularly since hours earlier Prime Minister Binyamin Netanyahu had for the first time agreed to enter substantive negotiations with the Palestinian Authority over the borders of a future Palestinian state, Channel 10 is reporting on Friday.

Aides to the prime minister are denying the Channel 10 report.

According to Channel 10, while Netanyahu refused Palestinian demands to explicitly present his position on borders, he did give consent to his government's chief representatives in the negotiations - Justice Minister Tzipi Livni and attorney Yitzhak Molcho - to present maps on which both sides would then proceed to sketch the contours of the political boundary that would separate Israel and a yet-to-be-created Palestine.

The prime minister also agreed to a freeze of all new construction in the Jewish settlements of Judea and Samaria, though he insisted that Israel would complete all construction that has already been initiated, according to Channel 10.

The Palestinians, for their part, responded that on the ground the public would not be able to differentiate between a freeze of new construction and the continuation of old project, rendering the offer moot. Aides to Netanyahu denied that the premier agreed to any freeze, according to Channel 10.

The Hamas-Fatah deal caught many in Israel by surprise, leaving some to question whether the intelligence services had not done an adequate job of foreseeing this development. Defense Minister Moshe Ya'alon rejected this premise, telling Channel 10, "There's a good chance that not even [Palestinian Authority Chairman Mahmoud Abbas] knew about it."

Just two hours after Israel suspended diplomatic talks with the Palestinians over Wednesday's Hamas-Fatah reconciliation pact, Netanyahu said he will "be there in the future if we have a partner that is committed to peace."

Netanyahu's comment came in an interview with MSNBC's Andrea Mitchell, after the seven-member security cabinet decided unanimously Thursday afternoon following a six hour meeting in Tel Aviv to suspend current talks with the Palestinians.

This decision came just five days before the April 29 deadlines for the talks that have gone on in fits and starts since July.

"I think the pact with Hamas kills peace," Netanyahu said. "If it moves forward it means that peace moves backward. As the State Department said yesterday, the ball is in the Palestinian court. I hope they dribble it in the right direction. Right now they are kicking it backward."

According to a statement put out by the Prime Minister's Office, the cabinet decided that "Israel will not negotiate with a Palestinian government backed by Hamas, a terrorist organization that calls for Israel's destruction."

Herb Keinon and Michael Wilner contributed to this report.