Ghazi Hamad, spokesman for the Hamas-led government, said in a statement late on Wednesday that the ministers had handed their portfolios over to Ismail Haniya, the Palestinian prime minister.

The next step would be for Haniya to hand in his resignation to Mahmoud Abbas, the Palestinian president, who is then expected to ask him to form the new government.

"All the ministers have placed their ministerial portfolios under the authority of the prime minister, as a way of easing the path towards forming a national unity government," Hamad said.

He said the resignations would not paralyse the government, adding: "We will keep working normally."

Aid frozen

The Palestinians hope that the new administration will end their international isolation, which has seen aid frozen and Israel refusing to transfer taxes it collects on behalf of the Palestinian Authority.

Livni (L) and Rice said Hamas
must recognise Israel

The government has faced a severe financial situation and been unable to pay full salaries to its 165,000 workers for the past six months.

Tzipi Livni, the Israeli foreign minister, said that her government would continue to deal with Abbas but said that he would have to take tough decisions about his relationship with Hamas.

"This is a moment in time [for] Mahmoud Abbas to decide whether the Palestinian Authority will operate on his terms or on the terrorists' terms," she said at a joint news conference with Condoleezza Rice, the US secretary of state, in Washington on Wednesday.
   
'Not negotiable'

Livni said that Israel will not deal with Hamas until it agrees to conditions laid down by the the US, Russia, the European Union and the UN - to recognise Israel, renounce violence and agree to past accords between the Israelis and the Palestinians.

"We expect the Palestinian Authority and the future government to meet this requirement fully and completely and we believe that these requirements are not negotiable," she said.
   
Rice reiterated that the US would also not deal with Hamas until it met the conditions.
   
"It goes without saying that it's hard to have a partner for peace if you don't accept the right of the other partner to exist," she said.