Hamas and Fatah agreed on release of prisoners and made progress on forming a new government [GALLO/GETTY]

Palestinian officials say they will be ready to unveil a new unity government at a meeting between Mahmoud Abbas, the Palestinian president and Fatah leader, and Khaled Meshaal, the Hamas chief, in Cairo next week.

Leaders from the two factions met for several hours in Cairo on Tuesday to discuss forming the new government, which Palestinians see as crucial for efforts to seek statehood in September.

Palestinian officials said the talks, headed by Azzam al-Ahmed, a senior Fatah member, and Moussa Abu Marzouk, the deputy politburo head of Hamas, found common ground on the release of prisoners held by the two factions and made progress on forming a new government.

But the two sides had yet to agree on a prime minister.

"The prime minister's name and those of the ministers will be announced before the people on Tuesday [next week]," Abu Marzouk told the Reuters news agency.

He said Abbas and Meshaal would be in Cairo to announce the new government.

Under a reconciliation accord reached in April, the rival factions agreed to form a government of technocrats, consisting of ministers without party affiliations, to prepare for general elections within a year.

Fatah nominated Salam Fayyad, an internationally respected former World Bank economist who heads the Palestinian government in the West Bank city of Ramallah, for the post of prime minister, but Hamas rejected Fayyad's nomination.

Fayyad supporters say his standing abroad was an asset for the Palestinians in ensuring the continued flow of international aid and in pursuing a bid for UN recognition of Palestinian statehood, expected in September.

Israel has said the reconciliation accord, brokered in secrecy by Egypt, would not secure peace in the Middle East and urged Abbas to carry on shunning Hamas.