Palestinian leader Mahmoud Abbas has suspended contact with Israel in protest at an assault on Gaza which has killed about 100 people, an aide says.
The suspension came amid demonstrations in Gaza and fresh clashes with Israeli troops in the West Bank.
Israeli PM Ehud Olmert vowed to carry on the assault, which came in response to militant rocket attacks on Israel.
The violence intensified on Saturday, when nearly 70 people were killed in one of Gaza's bloodiest days in years.
The dead included at least 13 Palestinians civilians and two Israeli soldiers.
Egypt said it had opened its border crossing with Gaza and was letting critically injured Palestinians across to get medical attention.
Reports say at least 100 people will be allowed in.
The fighting has drawn international calls for restraint, with UN Secretary General Ban Ki-moon and the US urging both sides to halt the violence.
But Israeli Defence Minister Ehud Barak said his country needed to prepare for an escalation of its air and ground operations in Gaza.
Rocket attacks on Israel have continued despite the assault on Gaza.
Uri Bar Lev, police chief in southern Israel, told the BBC that the border town of Sderot had been targeted by 15 rockets on Sunday.
He added that about 50 rockets were falling on the town each day. One Israeli died in an attack earlier this week.
Palestinian rockets have reached as far as the Israeli town Ashkelon, 16km (10 miles) from the Gaza Strip.
Mr Abbas' spokesman, Nabil Abu Rudeina, blamed Israel for the suspension of talks on all levels.
"In light of the Israeli aggression such communication has no meaning," he said.
A spokesman for Israel's Foreign Minister Tzipi Livni, Arye Mekel, told Reuters news agency the Palestinian decision was a mistake, and expressed hope that negotiations would resume.
Mr Abbas restarted the talks after a conference in November in the US city of Annapolis.
US Secretary of State Condoleezza Rice is due to visit the region in a few days.
West Bank clashes
Fighting continued in the Gaza Strip on Sunday, with Israeli troops operating in the northern town of Jabaliya for a second day and planes carrying out more raids in the area.
Early in the day, the offices of Ismail Haniya, a senior Hamas leader in Gaza City, were destroyed in an air attack.
A total of 10 Palestinians are reported to have been killed in Sunday's violence.
Officials from the International Committee of the Red Cross described the health situation as "extremely fragile".
They say hospitals, particularly in northern Gaza, are under immense strain, and surgeons have been working around the clock.
There have also been clashes in the West Bank.
A Palestinian teenager was killed in Hebron as troops responded to stone-throwing youths with rubber bullets and tear gas.
Other protests were held in Nablus, Ramallah and Bethlehem, AFP news agency reported.