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Palestinian lawmakers prepared to endorse a new unity cabinet on Saturday after Prime Minister Ismail Haniyeh of the Islamist Hamas movement declared that it would uphold the right to "all forms" of resistance to Israel.

Haniyeh's defiant note contrasted with a conciliatory speech by President Mahmoud Abbas of the rival secular Fatah faction, who stressed the search for peace and urged the world to end a crippling year-old boycott of the Palestinian government.

Israel ruled out dealing with the Fatah-Hamas coalition, citing Hamas's refusal to accept demands, set by a Quartet of foreign peace mediators a year ago, that it forswear violence, recognize the Jewish state and accept past interim peace deals.

"We're not going to work with this government," said Israeli Prime Minister Ehud Olmert's spokeswoman Miri Eisin.

"This government does not recognize our existence, it does not recognize the treaties, and most important, does not in any way renounce terror," she said, seizing on Haniyeh's remarks.

But with international anxiety mounting over the diplomatic impasse, factional violence and deepening Palestinian poverty, there have been signs of Western flexibility on talking to non-Hamas members of the new cabinet.

"This national unity wedding has received an Arab and international welcome, which we hope will be transformed into practical steps to end the siege," Abbas told lawmakers.

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Abbas, who heads the Palestine Liberation Organization, again endorsed an Arab offer of full peace with Israel if it quits all the land it occupied in the 1967 Middle East war.

But Haniyeh, who signed a power-sharing deal with Fatah leader Abbas last month, struck an uncompromising tone.

"The government affirms that resistance in all its forms, including popular resistance to occupation, is a legitimate right of the Palestinian people," he said.

Eighty-seven of the 132 Palestinian Legislative Council's members gathered in Gaza and Ramallah in a video-linked session. Forty-one lawmakers, including 37 from Hamas, could not attend because they are in Israeli jails. Israeli travel curbs prevented all the PLC members from meeting in a single venue.

CONFIDENCE VOTE

Haniyeh spoke ahead of a confidence vote seen as a formality given the combined strength of Fatah and Hamas.

The coalition's future may hang on whether it can erode the foreign boycott of the aid-dependent Palestinian Authority, which has been unable to pay its employees in full for a year.

The Quartet -- the United States, the European Union, Russia and the United Nations -- suspended direct aid to the government after Hamas beat Fatah in elections and took power last March.

The United States is expected to continue its boycott, but a U.S. official said on Friday that Washington would leave the door open to unofficial contacts with Finance Minister Salam Fayyad, an independent with strong reformist credentials.

France has invited new Foreign Minister Ziad Abu Amr to Paris, and Britain plans contacts with non-Hamas ministers.

Palestinians hope the new government will halt internal fighting, especially in Gaza, where clashes between rival security forces have killed more than 90 people since December.

"The two big challenges facing the government now are lifting the siege and ending chaos," Deputy Prime Minister Azzam al-Ahmad of Fatah told Reuters in Ramallah. "We can't move a step forward before achieving these two issues."

Outgoing Foreign Minister Mahmoud al-Zahar, a hardline Hamas leader, criticised Abbas's speech, saying his movement did not accept that the PLO could speak for the Palestinian people until it was restructured and broadened to include Hamas and others.

Haniyeh has said he will accompany Abbas to an Arab summit in Saudi Arabia later this month, but Zahar told Reuters it was unclear if the prime minister would go, given Hamas's rejection of the Arab peace plan, which will be high on the summit agenda.

The Saudi-brokered accord reached by Hamas and Fatah on February 8 pledged "respect" for past peace deals with Israel.

Even though those agreements were intended eventually to create a Palestinian state alongside Israel, Hamas says it will never recognize the Jewish state's right to exist.

Hamas officials say the Islamist movement will back the government's political agenda only as a "transitional" phase.

"We believe in liberating our land gradually," senior Hamas lawmaker Mushir al-Masri told Reuters. "Any transitional agenda that deals with gradual achievement of our goals on the basis of constant rights is one we can favor."

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