Israel has ruled out any immediate strike against the Palestinian Authority in retaliation for the suicide bombing of a Tel Aviv take-away that killed nine people yesterday.

Ehud Olmert, Israel's acting Prime Minister, made the decision, according to political sources, after meeting Cabinet ministers to decide on the response to the bloodiest attack on Israel in more than a year.

The Cabinet held the Hamas-led government of the Palestinian Authority responsible for yesterday's blast, but would not sanction military action against the Authority, reporters were briefed.

But Israel is proposing to upgrade Hamas's status from a "terrorist entity" to an "enemy entity", clearing the way for an intensification of military action.

“Israel sees the Palestinian Authority as responsible for what happened yesterday,” said Gideon Meir, a senior Israeli Foreign Ministry official.

Among the measures authorised was the revocation of the Israeli residency of three Hamas officials living in East Jerusalem and a police crackdown on the smuggling of Palestinians without permits into the Jewish state.

Security checks across the country were tightened in an attempt to stop the flow of would-be suicide bombers into Israeli territory. Sources say that they have stopped more than 100 so far this year.

Israeli soldiers today arrested the father and brother of Sami Hamad at his home in the West Bank town of Jenin. Sami, 21, is believed to have carried out the suicide bombing of the Mayor's Falafel stand at lunchtime yesterday, on the orders of the militant group Islamic Jihad.

As medics continued to treat 36 casualties in medical centres across Tel Aviv, the political fallout from the bombing - the worst in more than a year - was being felt around the world.

Hamas further isolated itself from the international community by refusing to condemn the attack, describing it instead as an act of self defence.

Today, the Palestinian President Mahmoud Abbas came under fire from a number of armed militias - including the al-Aqsa Martyrs' Brigade associated with his party Fatah - for publicly condemning the attack.

Dan Gillerman, Israel's UN ambassador, invoking President Bush's post-September 11 State of the Union address, described Iran, Syria and the Palestinian Authority as an "axis of terror."

Mr Gillerman told an emergency meeting of the Security Council that the Hamas government's public support for the bombing, combined with recent statements from Iran and Syria, amounted to "clear declarations of war".

He said that the triumvirate of Islamist regimes were sowing the seeds of the First World War of the 21st century.

Riyad Mansour, a Palestinian UN observer who is close to Mr Abbas, responded by noting that Israeli military strikes in Gaza earlier this month had killed 19 Palestinians, including two children.

"We restate our condemnation of the loss of innocent lives, Palestinian and Israelis, and we call upon the occupying power to do the same," he said.

The escalating confrontation between Israel and Hamas has added further to the PA's financial woes.

Japan today announced that it was considering joining the US and EU in refusing to hand over aid to the impoverished authority until it renounces violence. The government is struggling to pay the monthly salaries of its security and civic workers despite pledges of $50 million from Iran and Qatar.

A senior Council of Europe official said that the attack would entrench the international community against Hamas.

Rene van der Linden, who chairs the Council’s Parliamentary Assembly, said: "I resolutely and unconditionally condemn this act and call on all sides to do the same. The slaughter of innocent people can never be justified by any cause. It can never be ’self-defence'."’

"Only last week the assembly called on Hamas to renounce violence and condemn terrorist actions. It must now do so, clearly and unambiguously. Killing innocents will never bring peace."

In Holon, a town near Tel Aviv, the funeral was held of David Shaulov. He had rushed to meet his nine-months pregnant wife Radmila when she called to say she was going into labour, shortly before the explosion which killed him.

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