Abbas: First Shalit, then government

"Before this government is announced, several things need to be resolved: the problem of the Israeli soldier and that of the detained Palestinian prisoners, MPs and ministers," Abbas told journalists after meeting visiting French Foreign Minister Philippe Douste-Blazy.

He added that the announcement of a new government also depended on a complete lack of violence in the Palestinian territories.

"We are confident that the formation of such a government will represent a step forward," Abbas said.

Douste-Blazy called for the international community to re-evaluate its policy in terms of aid for and contacts with the Palestinian government.

"The formation of a Palestinian government of national unity which takes into account the aims of the international community would constitute a major development," he said.

"If it is confirmed, it should lead to a re-examination of the policies of the international community toward the Palestinian government in terms of aid and contacts."

Earlier, Israeli military prosecutors appealed a court order to release on bail 18 detained Hamas officials.

The appeal will be examined by the Ofer military court on Monday, until when the 18 – including parliamentary speaker Aziz Dweik – will remain in custody, defence lawyer Jawad Boulos said.

On Tuesday, a military judge ordered the men's release after they were detained as part of a massive clampdown on Hamas after its armed wing claimed responsibility for capturing Israeli soldier Gilad Shalit near the Gaza Strip.

Palestinians now await the official dissolution of the Hamas-controlled government and the formation of a national unity cabinet after six months of unprecedented political and financial crisis.

'Negotiations will be difficult'

Talks were progressing slowly over the makeup of the new government, which will include for the first time representatives from both the Islamist movement and Abbas's Fatah party.

"For the moment, we haven't reached an agreement on the portfolios," Salah Bardawil, a spokesman for Hamas's faction in parliament, told AFP.

Abbas and outgoing Hamas Prime Minister Ismail Haniyeh, who will retain his post in the new coalition cabinet, clinched a deal on Monday after weeks of tortuous talks on the new government's political program.

"Once we begin to discuss in detail specific names, I think the negotiations will be difficult," Bardawil said.

"It will be difficult to form a government before the departure of Abbas to New York," to attend the UN General Assembly next week, he said.

It was not clear when Abbas would dissolve the current government and formally charge Haniyeh with forming the new cabinet. On Wednesday, he said he hoped to do so "soon."

Several key ministerial posts, including finance, foreign affairs and interior, are likely to go to Fatah or independents in order to reassure the international community, officials close to the talks have told AFP.

Haniyeh's political adviser Ahmad Yussef told journalists the main portfolios such as finance and foreign affairs should go to independents "or personalities known for their honesty and patriotism, in order to avoid disagreements and polarization in the heart of these ministries."

Palestinians hope that a coalition government will end the severe political and fiscal crisis that has gripped the Palestinian territories since March, when Hamas came to power after winning January elections.

Above all, there is an expectation that the West will lift a freeze on direct aid to the cash-strapped government.

Worst-ever year for Palestinian economy

The freeze has wrought havoc on the territories, with civil servants not receiving full salaries since March.

The World Bank warned Thursday that 2006 could turn out to be the worst-ever year for the Palestinian economy.

"The average Palestinian's personal income will fall by 40 percent and 67 percent of the population will fall into poverty," it said in a report.

The European Union and the United States have demanded that Hamas, which they and Israel consider a terrorist organization, renounce violence, recognize the Jewish state and agree to abide by previous peace agreements.

US Secretary of State Condoleezza Rice said Wednesday that the new government would have to agree to these conditions for the stalled Middle East peace process to resume, as demanded by the diplomatic quartet grouping the United States, Russia, the European Union and the United Nations.

"We do believe that the quartet principles represent the consensus of the international community about the way forward between Israel and the Palestinians," she told a joint news conference with visiting Israeli Foreign Minister Tzipi Livni in Washington.

Haniyeh said Wednesday he saw no point in resuming negotiations with Israel, but underlined that any such talks were the prerogative of Abbas's Palestine Liberation Organization (PLO) and not of his government.

Abbas and Haniyeh's agreement to form the unity government was based on the national reconciliation document agreed on by most factions in June.

The 18-point blueprint stipulates that negotiations are the jurisdiction of the PLO and the president of the Palestinian Authority, on condition that any final agreement be ratified by parliament or put to a referendum.

It also calls for anti-Israeli attacks to be confined to the occupied West Bank and Gaza Strip, and for an independent state to be created within their borders, carrying implicit recognition of Israel's right to exist.