The United Nations Secretary-General, Ban Ki-Moon, has urged Israel to reconsider its decision to declare the Gaza Strip a "hostile entity".
The US secretary of state is to hold fresh talks with Israeli and Palestinian leaders on a peace summit, after Israel declared Gaza "hostile".
The Israeli government has said it will cut off energy supplies to Gaza in response to the continued rocket attacks by Palestinian militants there.
Ms Rice will hold talks with Israeli President Shimon Peres before heading to the West Bank for discussions with the Palestinian leadership.
Mr Ban said that withholding vital supplies from civilians would violate international law.
Israel said on Wednesday it would restrict fuel supplies to Gaza because of Palestinian militant rocket attacks.
But US Secretary of State Condoleezza Rice defended Israel's position.
Palestinian Authority President Mahmoud Abbas strongly criticised the move.
Ms Rice said the US considered Hamas a "hostile entity".
It prompted UN Secretary General Ban Ki-moon to remind Israel of its obligations under international law.
But she added the US "would not abandon the innocent Palestinians" of Gaza.
Israel's declaration came as Ms Rice arrived in Jerusalem for talks aimed at paving the way for a US-sponsored Middle East peace conference planned for November.
Ms Rice arrived in Jerusalem on Wednesday for talks about re-starting the Middle East peace process.
"Additional restrictions will be imposed on the Hamas regime, limiting the transfer of goods to the Gaza Strip, cutting back fuel and electricity, and restricting the movement of people," an Israeli government statement said.
Israeli public pressure for retaliation has grown since a rocket fired from Gaza hit an army base last Tuesday, injuring 69 troops.
'Choking embargo'
'Humiliating formulas'
Ms Rice defended Israel's position but made a distinction between civilians in the Gaza Strip and the militant group Hamas, which seized control of the territory in June.
Mr Ban said in a statement he was "very concerned" about Israel's decision.
She said America "would not abandon the innocent Palestinians" of Gaza.
Additional restrictions will be imposed on the Hamas regime, limiting the transfer of goods to the Gaza Strip, cutting back fuel and electricity, and restricting the movement of people Israeli government statement
"Such a step would be contrary to Israel's obligations towards the civilian population [of Gaza] under international humanitarian and human rights law," he said.
The militant group Hamas, which controls Gaza, said Israel's move would be considered a declaration of war.
Palestinian militant groups say the rocket fire is a response to Israeli military action in Gaza and the West Bank.
Israeli Prime Minister Ehud Olmert's office said his security cabinet had approved the "hostile entity" classification on Wednesday morning.
It is a declaration of war and continues the criminal, terrorist Zionist actions against our people Fawzi BarhoumHamas spokesman Israel's limited options
"Additional restrictions will be imposed on the Hamas regime, limiting the transfer of goods to the Gaza Strip, cutting back fuel and electricity, and restricting the movement of people," a statement said.
During a news conference with Ms Rice, Israeli Foreign Minister Tzipi Livni defended the move.
She said: "We made this decision according to our legal advisor, so it is according to international law.
"It is not going to affect the humanitarian situation in the Gaza Strip."
But a spokesman for Hamas in Gaza, Fawzi Barhoum, said: "It is a declaration of war and continues the criminal, terrorist Zionist actions against our people.
"They aim to starve our people and force them to accept humiliating formulas that could emerge from the so-called November peace conference," he added, referring to the US-sponsored talks expected later this year.
Mr Abbas, the moderate leader on whom the US has pinned hopes for peace, criticised the Israeli move.
The Palestinian Information Minister, Riyad al-Malki, said the Palestinian Authority would ask the US to "pressure Israel to refrain from taking such action".
"This oppressive decision will only strengthen the choking embargo imposed on 1.5 million people in the Gaza Strip, increase their suffering and deepen their tragedy," his office said in a statement.
Correspondents say that by formally declaring Gaza "hostile", Israel could argue that it is no longer bound by international law governing the administration of occupied territory to supply utilities to its 1.5 million inhabitants.
The UN secretary general said: "Such a step would be contrary to Israel's obligations towards the civilian population [of Gaza] under international humanitarian and human rights law."
But the current position is that, under international law, Israel remains legally responsible for the coastal strip, despite withdrawing two years ago, because it still controls Gaza's borders, airspace and territorial waters.
Hamas said Israel's statement was tantamount to a declaration of war.
The Israeli move will only be seen by Palestinians as a form of collective punishment and risks consolidating support for Hamas in Gaza, BBC diplomatic correspondent Jonathan Marcus says.
But the Israeli Foreign Minister, Tzipi Livni, insisted the decision did not breach international law and would not affect the humanitarian situation in the Gaza Strip.
Ms Rice is in the Middle East for talks ahead of the peace conference.
Israeli public pressure for action has mounted since a rocket fired from Gaza hit an army base last week, injuring 69 troops.
She is due to meet Mr Olmert and the Palestinian Authority President Mahmoud Abbas.
Palestinian militant groups say the rocket fire is a response to Israeli military action in Gaza and the West Bank.
Correspondents say that by formally declaring Gaza a "hostile entity", Israel could argue that it is no longer bound by international law governing the administration of occupied territory to supply utilities to its inhabitants.
Under international law, Israel remains legally responsible for the coastal strip, despite withdrawing two years ago, as it still controls Gaza's borders, airspace and territorial waters.
