The head of Fatah's parliamentary faction, Azzam al-Ahmad, said on Wednesday that "there is an agreement in principle and the intention is there but we must await the programme".

Al-Ahmad was speaking on Wednesday after a meeting between senior Hamas and Fatah figures in Gaza City.

"We are in a dialogue that has only just begun and we want to find common ground and we hope that we will seal an agreement," he said.
 
Hamas swept to victory in the 25 January election on a platform of rooting out corruption in a Palestinian Authority dominated by the mainstream faction.

Outlining what appeared to be a major sticking point, al-Ahmad told Reuters that Fatah would insist a Hamas-led administration adopt President Mahmoud Abbas's vision of negotiating peace with Israel.
 
Hamas's Mahmoud al-Zahar, who hosted the session with Fatah, said the two groups would meet again so that a coalition could be formed as soon as possible.
 
Hamas, sworn to Israel's destruction, has said talks with Israel would be a waste of time.

Israel unmoved

Israel has said it could not consider dealing with Hamas until the group recognised it, renounced violence and accepted past interim peace accords.

Olmert insists Israel will not
negotiate with a Hamas authority

An official quoted Ehud Olmert, the Israeli interim prime minister, as telling a parliamentary committee: "We do not conduct negotiations with a Hamas authority. We will reduce contacts with the authority to those which have a security dimension in order to prevent terrorism."

With George Bush, the US president, and some Western nations threatening to halt aid to a Hamas-controlled government, Iran pledged financial assistance to the cash-strapped authority.

Israel, which says Hamas and Iran are wedded to terrorism, has already stopped transferring tax revenue to the Palestinians.

Iran backing

Ali Larijani, secretary of Iran's Supreme National Security Council, was quoted by the semi-official ISNA students news agency as saying: "We will definitely provide financial aid to this government so they can stand up against the oppression of America."

He was speaking after meeting Khalid Mishaal, a Hamas leader who was visiting Tehran during a regional tour in search of funds.

US diplomats said Washington doubted Iran had the financial resources and know-how to support the Palestinians, who receive more than $1 billion in aid a year from donors.

Alvaro de Soto, the UN's envoy to the Middle East, held talks with Abbas in Gaza and said: "We very much hope and we appeal to all who can to assist the Palestinian Authority so that it does not face a fiscal crisis in the coming period."

US and Israeli officials are concerned Tehran will hold sway over a Hamas-led government, making prospects for reviving Middle East peace negotiations even more remote.

Cabinet formation 

Larijani (R) who met Mishaal (L) 
pledged Iran's aid to Hamas  

The Hamas-Fatah talks were held a day after Abbas asked Ismail Haniya, the Hamas prime minister-designate, to form a government.

Haniya, a 43-year-old Gazan viewed by many Palestinians as a pragmatist who has forged good relations with rival factions, has up to five weeks to put together an administration.

Hamas has said it expects to do so within two weeks.

Hamas has carried out nearly 60 bombings in Israel since a Palestinian uprising began in 2000 but has largely abided by a ceasefire forged a year ago.

Olmert, who surveys predict will win national elections on 28 March, has threatened to take unilateral steps to set borders for Israel if peacemaking remains frozen.

Last year's pullout from the Gaza Strip was popular with most Israelis.