The terms were swiftly rejected by Mahmoud Abbas's Fatah, which agreed with Hamas on Wednesday to renew negotiations on a unity government that might ease international isolation.

Ismail Haniya, prime minister of the Hamas-led government, set out a series of conditions on Friday that threatened to compromise the formation of a  national unity coalition.

Speaking at the main weekly Muslim prayers, Haniya insisted a Hamas member head the government, and that "all ministers and MPs" from the Islamist party arrested by Israel be freed as a prelude to forming such an administration.

"There will be no national unity government as long as ministers and elected officials are in Israeli prisons.

"They must be released, especially Aziz Dweik," Haniya said, referring to the parliamentary speaker who after Abbas is constitutionally the second most important official in the  Palestinian Authority.
 
Dweik's remand was extended on Thursday and pictures of him appearing in an Israeli military court with his feet in shackles were beamed all day on Arab television networks.

Gaza 'siege'
  
Haniya also said no unity government could materialise before Israel lifts its "siege" imposed on the Gaza Strip, where the Israeli military has conducted a punishing offensive since June  28.

"Any government must insist on the end of the siege [in the Gaza  Strip], the reason for which is that the government is led by Hamas," he said.

The embattled premier also insisted that "any [national unity] government must be based on the results of the Palestinian legislative election".

Abbas's Fatah movement has
rejected the demands

Neither could any official implicated in corruption take part in  any possible national unity coalition alongside Hamas, Haniya said.

Azzam al-Ahmed, the head of Fatah's parliamentary bloc, said there could be no talks on a unity government until there was "a common political agenda", adding that Hamas leaders had made clear they had not changed their stance.

"Hamas is talking about annexing other groups to their government and not about forming a unity coalition. I say in the name of Fatah that we will not accept to be an annexe to the government, we want to be partners," he said.

Progress or setback?

On Wednesday, Abbas had reported progress in efforts to form a coalition between his once-dominant Fatah party and Hamas, its Islamist rivals that won a sweeping victory in parliamentary elections in January.

Haniya had previously said his acceptance of a national unity  government was conditional on the release of the dozens of Hamas officials - including eight cabinet ministers - captured by the Israeli army two months ago.

Israel has been regularly hitting
fighters from resistance groups

The crackdown on the Islamist movement was launched in response to a June 25 cross-border attack by Gaza resistance groups - including Hamas's armed wing - in which two Israeli soldiers were killed and one captured.

Palestinian politics have been plagued by bitter internecine feuding since Hamas formed a government - boycotted by the West for its refusal to formally recognise Israel, and renounce violence.

A unity government, one of the points laid out in a national conciliation document backed by Hamas and Fatah in June, is seen as a way out of the ensuing fiscal and political crisis that has saddled the Palestinians for months.

Among other things, it could help resume at least partial  payments of aid suspended by the European Union and the US after Hamas took office on charges that it was a terrorist organisation.