http://news.bbc.co.uk/2/hi/middle_east/5093266.stm

Palestinian rivals 'nearing deal'

Hamas supporters demonstrate outside Palestinian parliament building in Ramallah

Rival Palestinian factions Hamas and Fatah are close to agreement on an initiative that would implicitly recognise Israel, officials say.

Senior figures have been in talks to resolve deep divisions over the move.

Hamas, which now controls the Palestinian government, refuses to recognise Israel's right to exist - in contrast to Fatah's position.

President Mahmoud Abbas has threatened to hold a referendum next month on the plan unless Hamas accepts it.

Hamas also challenges the legality of the referendum, which has been announced for 26 July.

The plan sets out formal Palestinian claims to an independent state on land occupied by Israel in 1967, and implicitly adopts a two-state solution.

The two factions have been locked in an intense power struggle since Hamas gained control of the Palestinian parliament in elections in January.

In another development, the factions have reached agreement on the division of the security forces, the Israeli Haaretz website reports.

Hamas is also under intense financial pressure, as the EU and US cut off funding after it came to power because of its stand on Israel.

But Western powers have agreed moves to release more than $120m of EU funds to support local health services and cater for the basic needs of poor Palestinians, but bypassing the Hamas government.

'Positive outlook'

The plan, known as the "prisoners' document", is based on proposals by Palestinian militants in Israeli jails.

It calls for continued resistance on lands occupied by Israel in 1967, but proposes an end to attacks inside the area internationally recognised as Israel.

Palestinian Prime Minister Ismail Haniya - a leading Hamas figure - said in a statement that "tangible progress" had been made in the talks.

Earlier Aziz Dweik, a Hamas leader and parliament speaker said that in the coming days "we will have a new and optimistic step for our Palestinian people."

A Fatah spokesman, Tawfiq Abu Khussa, told the AFP news agency that agreement had been reached "on almost all of the issues in the prisoners initiative and things are looking very positive."

Another senior Fatah figure, Abdullah Ifranji, also predicted agreement would be reached in the coming days, saying: "There is an agreement on the document with reservations, but the movement is positive."

The Palestinian parliament which is dominated by Hamas will hold a debate on the referendum issue this week.