Election winner Hamas said its goal was to establish as broad a coalition as possible as it faced a cut off in vital tax funds from Israel and a threatened boycott by major powers if it refused to renounce violence and recognise Israel.
With an Israeli helicopter gunship circling overhead on Monday, a Hamas delegation met leaders of the Popular Front for the Liberation of Palestine (PFLP), a group involved in a more than five-year-old Palestinian uprising against the Israeli occupation.
After the talks, the PFLP agreed in principle to join the new Hamas led government.
Rabah Muhanna, a member of the faction's politburo, said :"We have given our agreement in principle to participating in the government as long as we can reach an accord on the political and social programme."
But the Islamic Jihad turned down Hamas's invitation to join the next Palestinian government.
Nafez Azzam, an Islamic Jihad leader, said: "We will not participate in the government but we will stand beside Hamas in the project of resistance to protect the interests of our people."
Before the meeting, Islamic Jihad had said it feared a Hamas-led government would be restricted in its policy by interim Israeli-Palestinian peace accords, which both militant groups reject.
"We will not participate in the government but we will stand beside Hamas"
Islamic Jihad leader
Hamas said that despite Islamic Jihad's decision, it would leave the door open for the group to join the government in the future.
Talks were also scheduled with the Democratic Front for the Liberation of Palestine (DFLP).
Later on Monday, Hamas planned to meet Mahmoud Abbas, the Palestinian president, whose long-dominant Fatah faction was trounced by Hamas in the 25 January parliamentary election.
Past peace deals
Hamas has rejected Abbas's calls to continue to honour past peace deals with Israel and has refused to recognise Israel, but it has signalled readiness for a long-term truce if Israel withdraws from lands it occupied in the 1967 war.
Sami Abu Zuhri, Hamas's spokesman, said the group was trying to form "the largest national coalition possible" by early next month.
"We are going to talk to Hamas about finding common ground for a programme to form a national coalition government"
Senior PFLP leader
Salah al-Bardaweel, spokesman for Hamas' parliamentary bloc, said Hamas would officially present Abbas with its choice for prime minister, Ismail Haniya.
But it was unclear whether Hamas, which has largely observed a ceasefire since last year, would succeed in bringing all of the other resistance groups on board.
Witnesses outside the house where the talks took place said an Israeli military helicopter was seen circling overhead. The Israeli military declined to comment.
Hamas became the majority bloc in parliament on Saturday, prompting Israel to halt its monthly transfer of millions of dollars to the Palestinian Authority.
Abbas said the move had plunged the Palestinians into a financial crisis.
Israel sought to play down the outcome of Monday's talks between factions.
"It will be Hamas that will be conducting the orchestra"
Israel's Foreign Ministry spokesman
Mark Regev, Israel's Foreign Ministry spokesman, said: "The exact composition of the incoming Palestinian government is of lesser importance.
"The essential fact is that the incoming government will be dominated by Hamas, the ministers will be appointed by a Hamas-led parliament and it will be Hamas that will be conducting the orchestra."
In fresh violence on Monday, Israeli troops carried out a raid in the West Bank city of Nablus and ambushed armed men from Islamic Jihad, killing two, including the group's West Bank commander, Palestinian sources said.
Four armed men were wounded.
Israel said its gunners fired artillery shells at Gaza in response to rockets fired at Israeli towns. There were no reported injuries.
Four Palestinians died in violence with Israel on Sunday, two of them teenagers shot by Israeli soldiers confronting stone-throwing protesters while searching for Palestinian fighters near Nablus. Two fighters were killed in an air attack in Gaza.
Also on Monday, Aziz al-Duwaik, the new Hamas speaker of parliament, ordered a freeze on all decisions made by outgoing MPs at a meeting last week.
The freeze included approval for Abbas to appoint members of a new constitutional court.
Duwaik has frozen last-minute
decisions taken by the PLC
The statement posted on notice boards in the Ram Allah-based Palestinian Legislative Council (PLC) announced that votes in parliament after last month's general election would be regarded as null and void.
The statement signed by al-Duwaik said: "All the decisions that were taken by the previous PLC since January 25 are now frozen and we will review these decisions in accordance with the basic law."