Hamas leaders were holding talks with those of the vanquished Fatah faction about joining a new coalition after the radical Islamist movement was formally handed the task of forming the next Palestinian government.
Mahmud al-Zahar, the overall leader of Hamas in the Gaza Strip, was hosting a meeting with a group of Fatah deputies, including their leader in parliament, Azzam al-Ahmed.
None of the delegation spoke to reporters outside the house as they entered for the talks.
Hamas, which won a landslide general election victory four weeks ago, has already got the green light from the small leftist Popular Front for the Liberation of Palestine (PFLP) to join a coalition, but its chance of persuading Fatah to re-enter government as a junior partner appears remote.
Several senior Fatah figures have indicated that they want to see how Hamas manages to cope with a litany of challenges facing the Palestinian Authority, including an increasingly acute financial crisis.
Major players in the Middle East peace process, including the United States and European Union, have threatened to slash funding unless Hamas commits itself to non-violence, accepts past agreements signed with Israel and recognises Israel's right to exist.
On Tuesday, Palestinian leader Mahmud Abbas, who is himself from Fatah, formally handed prospective Hamas prime minister Ismail Haniya a letter tasking him to form the next government.
Haniya, who led the group's list of candidates in the election, said Hamas would study the offer.
‘I received the nomination letter from president Abu Mazen (Abbas). The Hamas leadership will examine the contents of this letter before soon giving a definitive response to the president,’ Haniya told reporters on Tuesday night.
Haniya, a mild-mannered former university administrator, is seen as the moderate face of a movement that has been behind dozens of suicide attacks and which is regarded in the West as a ‘terrorist’ organisation.
Israel has refused point blank to have any dealings with a Palestinian Authority government led by Hamas and has already imposed sanctions such as the withholding of customs duties and taxes worth around 50 million dollars a month. The money is collected by the Jewish state on behalf of the Palestinians
The move has been criticised by the UN's Middle East envoy and countries such as Egypt.
UN envoy Alvaro de Soto said on Monday that the freeze was ‘problematic for several reasons. The first and most obvious one is that these are monies that belong to the Palestinians and should not be withheld in any case.’
The United States has backed Israel's right to withhold the cash, which accounts for around one-third of the Palestinian Authority's budget.
‘The US position is this is a sovereign decision for the government of Israel to make ... We understand that decision,’ said deputy State Department spokesman Adam Ereli.
President George W. Bush declined to comment on the move but reiterated his demand for Hamas to renounce calls for Israel's destruction and to abandon violence.
‘So long as Hamas does not recognize Israel's right to exist, my view is we don't have a partner in peace, and therefore shouldn't fund a government that is not a partner in peace,’ he said.
Bush's Secretary of State Condoleezza Rice is on a brief tour of the Middle East where she is trying to persuade Arab countries not to bail out Hamas.
Hamas's election victory was expected to feature heavily in her talks with Egyptian President Hosni Mubarak on Wednesday.
Egypt, one of the few Arab countries to have relations with Israel, has been a key mediator in the conflict and hosted talks a year ago when Hamas signed up to a truce.
The truce expired at the end of the year but Hamas has yet to carry out any attack since then. However, Rice made clear that Hamas had to make an unequivocal break from its violent past and that embracing democracy was not enough.
‘You cannot have one foot in the camp of terror and another foot in the camp of politics,’ said Rice after talks with Egypt's Foreign Minister Ahmed Abul Gheit.