Israel has suspended talks with the Palestinians about setting up a bus service between Gaza and the West Bank.
Israel has restricted Palestinian movement since the bombing
The talks were called off because of the suicide bombing in Netanya on Monday, Israeli officials said.
The service was agreed at talks with the US secretary of state that led to the reopening of the Gaza-Egypt border.
Due to begin next week, it would have greatly improved Palestinian freedom of movement as the first link-up between Gaza and the West Bank for five years.
A number of disputes had arisen between Israel and the Palestinian Authority since Condoleezza Rice's visit last month.
Israel has been insisting on reducing the size and frequency of the bus convoys, restricting who could travel and how long Gazans could stay in the West Bank.
Palestinian negotiator Saeb Erekat called the move a "flagrant violation" of the Rice agreement.
"I wonder why would the Israelis do such a thing? We condemned the Netanya attack. What's the linkage between that and the Gaza convoy? That mentality makes no sense," he said.