The impasse threatens to unravel Palestinian efforts to restore direct Western aid that was cut when the Islamist Hamas movement took office in March.

One aide, Ahmad Abd al-Rahman, said negotiations would be frozen until Abbas returned from a trip to New York later this week, where he will attend a UN meeting.

"The president has frozen measures to form a unity government after the conflicting statements issued by Hamas and its leaders, which have prompted unfavourable international reactions," he said.

Aides blamed comments by Ismail Haniya of Hamas, the Palestinian prime minister, in particular for the tensions.

Recognition issue

On Saturday, Haniya insisted a document written by Palestinian prisoners in Israeli jails that serves as the basis for the unity guidelines "does not recognise the occupation" - Hamas's term for Israel - nor accepts existing peace deals.

Haniya said, without elaborating, that the two issues "will be dealt with in the way that serves the higher interests of the Palestinian people".

Hamas has said it rejects previous peace agreements such as Oslo in 1993 and the road map agreement of 2002 as they call for official recognition of the state of Israel.

Hamas opposes this and rejects Israeli control of any part of historic Palestine.

Optimism

An aide to Abbas, Nabil Amr, told Aljazeera that a formula had been agreed that would allow Hamas to recognise the agreements, until Haniya's statements meant the plans had to be put on hold.

However Ghazi Hamad, spokesman for the current Hamas-led government, expressed optimism over the coalition.

"There are some issues of difference, but in general things are going smoothly and well. We have not reached a dead end," Hamad said.

"We need some more time to settle the differences."

Palestinian officials have said the US told them the unity coalition deal must be cancelled or amended to meet three conditions the Quartet of Middle East mediators had set for lifting sanctions.

The Quartet - the US, the EU, the UN and Russia - have called on Hamas to recognise Israel, renounce violence and accept the interim peace deals.