After Saudi mediation, Hamas and Abbas's Fatah group agreed a month ago to forge a coalition cabinet in a bid to halt weeks of bloody factional fighting that cost more than 90 lives.

 

'True national unity'

 

Disputes between Fatah and Hamas over the posts of interior minister and deputy prime minister appear to have been resolved.

 

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An official close to the talks said Haniya would pick one of two candidates approved by Abbas for the interior ministry.

 

Abbas indicated that parliament could convene for a confidence vote in the new government the week after next.

   

"We hope that this will be an era of true national unity," he said. "The homeland is for all parties. The people have suffered a lot and we should alleviate their suffering."

   

Once the unity cabinet is formed, Abbas wants international donors to lift a crippling diplomatic and financial boycott imposed on the Palestinian Authority after the Hamas won elections and came to power a year ago.

 

Demands rejected

 

Hamas has rejected demands by the 'Quartet' of Middle East mediators - the US, EU, Russia and the UN - to recognise Israel, renounce violence and accept existing interim peace accords.

   

Foreign donors have been channelling money directly to Abbas's office, bypassing the Hamas-led government.

 

Israel also released some tax revenue to Abbas.

 

Western diplomats say some of the money had gone to pay salaries to government workers, possibly including Hamas members and supporters on the Palestinian Authority's payroll.

 

"We have heard the rumours (on how the money has been used). The prime minister will ask Abu Mazen when they meet early next week," Olmert's spokeswoman Eisen said, using the Palestinian president's nickname.