Interim Prime Minister Ehud Olmert said yesterday Israel would boycott a Palestinian government that includes Hamas and that he had urged foreign leaders to do the same.?Israel will not hold any contacts with the Palestinians? unless Hamas ?renounced terror?, recognized the Jewish state?s right to exist and accepted all agreements the Palestinian Authority signed with Israel, Olmert said in broadcast remarks.

Addressing his cabinet, he said he delivered that message in telephone calls to British Prime Minister Tony Blair, French President Jacques Chirac, Egyptian President Hosni Mubarak, Jordan?s King Abdullah and U.N. Secretary General Kofi Annan.

German Chancellor Angela Merkel, who began a visit to Israel and Palestinian areas yesterday, said she would shun Hamas but meet President Mahmoud Abbas in Ramallah. Merkel will be the first European Union leader to visit the area since the Islamic militant group won last week?s election.

Hopes for peacemaking have been pushed further into limbo since Hamas, whose charter calls for Israel?s replacement by an Islamic Palestinian state, scored a crushing victory over the long-dominant Fatah party in Wednesday?s parliamentary election.

Hamas leaders have rejected as blackmail Western demands that it renounce violence against Israel or risk losing aid vital to the survival of the Palestinian Authority. The United States has said it would review aid to the Palestinian Authority if Hamas entered government.Israel suggested it could suspend customs revenue transfers to the Palestinian Authority, money crucial to paying the salaries of tens of thousands of government employees. The European Union, the biggest donor, is looking at its options.

Opinion polls show that Olmert, who took over from Ariel Sharon after the prime minister?s stroke on January 4, is set to lead the new centrist Kadima party to victory in Israel?s March 28 general election.

But Hamas?s electoral win raised speculation in Israel that former Prime Minister Benjamin Netanyahu?s right-wing Likud party, now running third in the surveys, could narrow the gap with Kadima.

Jeffrey HELLER