Speaking in Hebrew, Hamad also said the Palestinians are ready for an independent state in territories captured by Israel in the 1967 Mideast war.

A US State Department official said Monday night that if the Palestinian Authority hoped to receive international aid, it would have to renounce violence and recognize Israel.

The official praised PA President Mahmoud Abbas' willingness to meet with Prime Minister Ehud Olmert.

The power struggle that has been raging in the PA for the past seven months appeared to be nearing its end on Monday with the announcement that Abbas and Prime Minister Ismail Haniyeh had reached an agreement to form a national unity government.

According to the agreement, the new government will be headed by Haniyeh, but will have less Hamas ministers, PA and Hamas officials told The Jerusalem Post. This would be the first government of its kind since the establishment of the PA more than a decade ago.

Representatives of Abbas's Fatah faction, as well as the Popular Front for the Liberation of Palestine and the Democratic Front for the Liberation of Palestine are expected to hold a number of portfolios in the new government, they added.

"The two sides still haven't reached an agreement on the distribution of the cabinet portfolios, but there is a tendency to bring in some independent figures and technocrats," said one official.

Abbas is expected to issue a "presidential decree" within the next 48 hours to dissolve the Hamas-led cabinet as a first step toward establishing a unity government.

Abbas told reporters after meeting with Haniyeh in Gaza City on Monday morning that the new government could take power within days.

"The continuous efforts to form a national unity government have ended successfully with the announcement of a political program for this government," he said. "We hope that in the coming few days we will begin forming the government of national unity."

He added that the "national interest requires that all our people unite so we can achieve victory by establishing our independent Palestinian state with Jerusalem as its capital."

Haniyeh confirmed the deal and said he would head the new government. "We have gone a long way and expect within the next few days to create a constitutional mechanism that allows for a national unity government," he said. "Today I bring good news to the Palestinian people and I feel proud that at this important moment we establish a national coalition government."

Despite the announcement, a PA official told the Post that the final details of the unity government had yet to be worked out.

The official pointed out that it was too early to determine whether the new government's political program was in line with the conditions set by the Quartet - the US, EU, Russia and the UN - to meet the three criteria: recognition of Israel, an end to terror attacks and adherence to all agreements signed between Israel and the Palestinians.

According to the official, the main goal behind the latest agreement was to convince the international community to resume financial aid to the Palestinians. "We hope that the international community will realize that the time has come to remove the financial sanctions imposed on our people since Hamas took power," he said.

Sources close to Abbas hailed the agreement as a "historic" event because, they explained, it signaled a dramatic change in Hamas's radical ideology. They said Hamas had accepted the 2002 Arab peace initiative that was announced in Beirut and that calls for a two-state solution.

However, Hamas spokesman Sami Abu Zuhri said that despite the agreement, his movement would not recognize Israel.

"Hamas will continue to have its political agenda and in relation to the occupation, we will never recognize the legitimacy of the occupation," he said. He added that in any case, the unity government would not be formed until Israel released all Hamas officials arrested over the past three months.

Abu Zuhri said the unity government's political agenda was largely based on a document drafted by some leaders of Palestinian prisoners in Israeli jails earlier this year.
The document does not explicitly recognize Israel's right to exist, although it calls for the establishment of a Palestinian state in the West Bank, Gaza Strip and east Jerusalem.

Salah Bardaweel, a Hamas legislator and spokesman in the Gaza Strip, said his movement's position regarding the conditions of the Quartet remained unchanged.
"Our position is very clear," he said. "We emphasize that we won't recognize Israel, but at the same time we are prepared to accept the existing political reality."

In Israel there was no formal response from the Prime Minister's Office. However, Foreign Minister Tzipi Livni told visiting Spanish Foreign Minister Miguel Moratinos that for there to be any progress, the new Palestinian government would have to accept the three benchmarks: recognizing Israel, accepting previous agreements and renouncing terrorism. If it does not, she said, there would be no progress and Abbas would have to explain to the international community the ensuing deadlock.

During Sunday's cabinet meeting, OC Military Intelligence Maj.-Gen. Amos Yadlin said such an announcement was expected before Abbas's visit to Washington on September 14, so that he could bring with him an achievement in hand.

Yadlin also said it was not in Israel's interest for there to be a joint Hamas-Fatah government, because it would be a way for Hamas to gain legitimacy indirectly.

Herb Keinon contributed to this report.