The Army of Islam gained notoriety in 2006 when it worked with Hamas to capture Israeli soldier Gilad Shalit and was also involved in the 2007 abduction of BBC journalist Alan Johnston.
The two groups are now rivals.
The U.S. State Department said the Army of Islam, which is closely linked to Gaza`s powerful Doghmush clan, was also responsible for a number of rocket attacks on Israel and attacks on Egyptian civilians in 2009 which resulted in casualties and deaths.
"AOI has previously worked with Hamas and is attempting to develop closer al-Qaeda contacts," the State Department said in a statement, noting that the group had released a eulogy for al Qaeda leader Osama bin Laden after he was killed in Pakistan during a raid by U.S. forces on May 2.
The State Department now has 48 groups on its official list of foreign terrorist organizations including Hamas, which controls the Gaza Strip. (*)