The decision by Israel's security cabinet, announced in a statement from Prime Minister Benjamin Netanyahu's office, comes after rival Palestinian movements Fatah and Hamas signed a landmark unity deal last week aimed at ending their decade-long split.
The statement said negotiations would not be held until a range of conditions were met.
Beyond the initial three, it also said Hamas must no longer be supported by Iran, which provides it with military assistance.
Hamas hangs three Palestinian 'collaborators' with Israel
In addition, it said the remains of two missing Israeli soldiers must be returned from the Gaza Strip to Israel.
Three Israeli civilians believed held in Gaza, all said to be mentally unstable, must also be returned, it said.
Palestinian president Mahmud Abbas's Fatah, based in the occupied West Bank, and Hamas, which runs the Gaza Strip, signed the unity agreement in Cairo on Thursday.
The Abbas-led Palestine Liberation Organisation has recognised Israel, unlike Hamas.
The Palestinian Authority, currently dominated by Fatah, is due to resume control of the Gaza Strip by December 1 under the deal, however previous such attempts at reconciliation have repeatedly failed.
A major sticking point is expected to be Hamas's refusal to disarm its 25,000-strong armed wing.
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