Netanyahu's adviser, David Bar-Illan, said the ministers would not be convened until Israel receives guarantees from the United States that 30 Palestinian alleged security offenders will be arrested.
Among the 30 Palestinians that Israel wants arrested are 12 members of Arafat's police force.
Arafat said on Wednesday the Palestinian Authority had already arrested 12 of the 30 Palestinians that Israel listed. He told reporters that the Palestinians would continue to work "100 percent" towards detaining the remaining people.
"We...have detained 12 of them. They are people who have committed terrorist acts. We will continue to pursue the others," Arafat said. "We will continue working 100 percent but nobody can achieve 100 percent results."
The new Israeli delay makes it increasingly unlikely that Israel and the Palestinians will stick to the original 12-week timetable, which was to go into effect on Monday.
As part of the plan, Israel was to withdraw from 13 percent of the West Bank, with the first pullback installment due Nov. 16.
Netanyahu has said implementation would not begin until the agreement is approved by the cabinet and by Israel's parliament.
The decision to postpone the cabinet session also was likely to increase friction between the Netanyahu government and the United States, which has said the Palestinians have lived up to their obligations and have presented a satisfactory anti-terror plan.
The Israeli daily Haaretz said U.S. officials were "astounded" by what they considered an Israeli attempt to change the agreement.
Palestinian negotiator Saeb Erekat accused Netanyahu of seizing a pretext in order to dismantle the accord before it has begun.
"He is inventing new agreements. He does not want to honor anything," said an angry Erekat.
The new recriminations made it clear that any good will created during last month's Mideast summit at secluded Wye Plantation in Maryland has dissipated, and the United States will probably be called in as a referee throughout the implementation process.
U.S. Mideast envoy Dennis Ross was to arrive in the region Thursday to oversee implementation.
At issue in the latest dispute is Israel's demand to receive written U.S. guarantees that the Palestinians will arrest 30 Palestinians, most of them suspects in the killings of Israelis.
Bar-Illan acknowledged that during the Wye negotiations, the two sides settled for verbal assurances that the Palestinians would arrest the 30 suspects. However, he said Israel believed it would receive written assurances on the issue from the United States before implementation of the agreement began.
The U.S. has said that Palestinians are in compliance so far with obigations spelled out in the Wye agreement.
Netanyahu said earlier Wednesday that he would only convene his cabinet once he had the U.S. guarantees in hand. Minutes before the meeting was to begin, Bar-Illan said it had been postponed indefinitely.
Asked by Israel radio if he was creating a crisis over a minor issue, Netanyahu said: "I just want to establish the principle... We are not reopening the agreement. We are insisting that the agreement be honored to the letter."
Netanyahu also said that he would not put up with Palestinian violations of the accord negotiated last month with U.S. help.
"I'm not saying that promises cannot be broken," he said. "But if they are broken, we will stop the process."
Israeli journalist Hemi Shalev commented on this week's confusion in the Maariv daily.
"There were many in Israel who expected a moving drama and others who expected a horrible tragedy, but no one thought that this 'historic' week would, of all things, be a comedy of errors," he wrote.
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