However, top Hamas leaders have yet to decide whether to accept the plan, and similar negotiations have broken down before.

The new proposal would enable Hamas to appoint eight ministers and Fatah would choose four, with the remainder of the portfolios awarded to smaller parties. The new prime minister would be chosen by Hamas.

A top Hamas official in Damascus, Moussa Abu Marzouk, said Haniyeh would not lead the new Palestinian government.

Abbas has urged Hamas to choose an independent, in order to make the new government more attractive to the international community, Abbas aides have said.

Hamas' supreme decision-making body, the secret Shura Council, is to decide in the coming days whether to accept the proposal.

Wasfi Kibha, a Hamas Cabinet minister, told the AP ahead of Monday's meeting that the sides have reached an agreement in principle but need to wrap up important details.

Whether the government would meet the international demands remained unclear. The Quartet of Mideast peacemakers - the US, the European Union, the United Nations and Russia - demands that any Palestinian government renounce violence, recognize Israel's right to exist and accept past peace deals.

Western donors, led by the US and EU, have cut off hundreds of millions of dollars in aid to the Hamas-run Palestinian Authority. Israel also has suspended vital tax transfers to the Palestinians.

Without the funds, the Palestinian government is mired in a cash crisis, largely unable to pay the salaries of some 165,000 employees and causing widespread hardship in Gaza and the West Bank.

The latest round of talks moved ahead despite the Israeli offensive in northern Gaza border, aimed at halting Palestinian rocket fire on Israeli communities near the coastal strip.

More than 50 Palestinians, most of them militants, have been killed in Israeli airstrikes and shelling.

The offensive has drawn growing international criticism, but Israeli Prime Minister Ehud Olmert said the military would press on.

At United Nations headquarters in New York, the Palestinian UN observer Riyad Mansour called for a mutual cease-fire to end the Israeli offensive in Gaza. He said the Palestinians were also willing to accept UN observers to monitor the cease-fire along the Gaza-Israel border.

In Cairo, Palestinian Foreign Minister Mahmoud Zahar called for an urgent gathering of Arab foreign ministers to discuss the deteriorating situation in the Gaza Strip. Zahar met with Arab League representatives.

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