Israel is considering labeling the Palestinian Authority an enemy state on the level of Syria, Lebanon and Libya after Hamas takes over the Palestinian Legislative Council on Saturday, according to foreign ministry sources. The move would be part of efforts to tighten the noose around Hamas, which Israel is seeking to isolate internationally until it renounces violence and recognizes the Jewish state. No deadline has been set for when the PA's designation as a "terror entity" would be put into effect. In keeping with the program of isolation, which will be reviewed by Acting Prime Minister Ehud Olmert Friday, Defense Minister Shaul Mofaz on Thursday approved a long list of harsh economic sanctions ranging from a ban on Palestinian workers entering Israel to an immediate halt of money transfers to the PA. "The swearing-in of the Palestinian parliament on Saturday rings a gong for us," Mofaz told security officials at the meeting on the sanctions. "A Hamas government will mean an authority of terror and murder. Already today Hamas is part of the Axis of Evil that begins in Iran, continues to Syria, Hizbullah and now to the Palestinian Authority." He added, "This is a serious threat to Israel." In addition to slamming the brakes on funding, Mofaz accepted recommendations to turn Gaza's Karni and Erez Crossings into international border terminals. If the recommendation is accepted by Olmert, the Palestinians would no longer be allowed to move merchandise out of Gaza free of charge and would need to pay customs and other taxes. Mofaz also froze plans to build a harbor and airport in Gaza. For the time being, Mofaz ordered the defense establishment to refrain from placing any restrictions on the transfer of humanitarian, electric and water supplies to Gaza. The measures, which officials said were expected to be approved by Olmert during a high-level meeting on Friday, would go into effect beginning Sunday. The sanction's goal, officials said, was to convince Hamas to meet Israel's conditions for talks - an acceptance of previous agreements with the PA; recognition of Israel's right to exist and the dismantlement of its terror infrastructure. Mofaz appointed Coordinator of Government Activities in the Territories Maj. Gen. Yosef Mishlav to head up a team which will present weekly recommendations on how to further isolate Hamas. "As of Saturday, all the rules of the game change," said Haim Ramon, a senior member of Olmert's Kadima party. "What needs to guide us ... is that we will not honor agreements with a terrorist authority led by Hamas." One of those agreements is Israel's annual transfer to the Palestinians of about $600 million in taxes and customs duties it collects on behalf of Palestinian merchants and laborers. The transfers are crucial for the PA and are mostly used to pay the salaries of 140,000 government workers - 40 percent of whom work for the security forces. Honoring the transfer agreement after Hamas takes power makes no sense, Ramon said. "Is it even conceivable that we would collect money and hand it over to the terrorist organization," he asked. But while some security officials recommended harsher measures such as cutting off the electrical supply to Gaza, Mofaz ordered the defense establishment to hold back for now and to allow the transfer of water, electricity and humanitarian supplies into Gaza. Maj.-Gen. (res.) Amos Gilad, head of the Defense Ministry's Political-Military Bureau argued Thursday that extreme measures like stopping the electrical flow to Gaza could backfire. "Cutting off the electricity to the Palestinian people who will then suffer is not necessarily productive," Gilad said. "Every step that seems attractive is not necessarily the right one to take." Senior security officials who participated in Thursday's meeting with Mofaz including head of the Shin Bet (Israel Security Agency) Yuval Diskin and head of Military Intelligence Maj.-Gen. Amos Yadlin asserted that Hamas was still involved in anti-Israel terror activity despite the group's attempts to present itself as terror-free. "Their goal is to mislead the public and to cause fractures among international decision makers while they are busy building up their forces for a violent showdown with the State of Israel," the officials told Mofaz. Foreign Minister Tzipi Livni declared on Israel Radio Thursday that the rules of the game when it comes to the Palestinians will change next week, once Hamas has entered the legislature. But EU foreign policy chief Javier Solana, who met with Livni while on a tour of the Middle East, said the European Union would not consider next week the date for the formation of a new government. Hamas still needs to form a cabinet after taking over the legislature. The EU - as well as fellow Quartet members America, Russia, and the UN - has signed onto the same demands made by Israel for international support: that Hamas recognize Israel, renounce violence, and accept previous agreements between Israel and the PA. But differences over the timing of when to implement a changed approach - particularly cutting funds - have emerged. At the same time, the UN welcomed indications that Israel won't oppose humanitarian aid to the Palestinians, as part of an effort to make a distinction between the Palestinian population and government. "It never occurred to me that Israel would want to see people who are in need of the most basic assistance deprived of that assistance because of the way they voted," UN Middle East Peace Envoy Alvaro de Soto told The Post. "Palestinians simply aspire for better and cleaner government, and remain desirous of achieving a two-state solution by peaceful means." He added, "I am also sure that, as they review assistance in light of the stance taken by a new PA government, decision-makers will bear in mind how hard it is to compartmentalize humanitarian assistance neatly," since the PA provides most of the social services to meet Palestinians' basic needs. "To deprive the PA of the ability to provide essential services to the people could generate a new set of humanitarian problems and create a new emergency, while eroding the PA's basic delivery capacity over time," he said. "The PA is not a light switch that you can turn on and off at will."