Accusing the Islamic militant group Hamas of backtracking, moderate Palestinian President Mahmoud Abbas warned on Saturday that his efforts to set up a national unity government that is acceptable to the West are "back to zero."

Palestinian President Mahmoud Abbas (R) arrives in Amman September 23, 2006. [Reuters]

Prime Minister Ismail Haniyeh of Hamas said Friday he would not lead a coalition that recognizes Israel, dealing a blow to Abbas' attempts to form a power-sharing government between his ousted Fatah group and Hamas.

On Saturday, Hamas officials suggested that Abbas had oversold the emerging coalition to the international community, portraying it as more conciliatory toward Israel than it was meant to be. Despite Abbas' pessimism, Hamas insisted a deal could still be struck.

Abbas is to meet with Hamas leaders in Gaza on Monday.

The latest setback comes at a time of growing tensions between Hamas and Fatah, particularly in the Gaza Strip, where some Fatah members have accused Hamas of involvement in the assassination of a Fatah-allied security chief last week. If the rival factions fail to reach agreement, more violent confrontations appear inevitable.

Abbas, who was elected separately, has few other options. As president, he could dissolve the Hamas government, but a new government would also require ¡ª and likely be denied ¡ª approval by the Hamas-controlled parliament. Palestinians would likely balk at early elections, having gone to the polls just nine months ago, and Fatah has no guarantee it would win this time.

Earlier this month, Hamas agreed in principle to share power with Fatah, hoping a broader coalition would end the crippling international boycott of the Palestinian Authority. The two sides agreed that the new government would strive to set up a Palestinian state alongside Israel, implying recognition of the Jewish state.

At the United Nations in New York earlier this week, Abbas said the new government would recognize Israel, prompting angry denials by Hamas. On Friday, Haniyeh offered a long-term truce with Israel instead.

After meeting Saturday in Cairo with Egyptian President Hosni Mubarak, Abbas told reporters that there was "backtracking" on the negotiations for a unity government. "Sadly, we are back to zero," he said.

Palestinian legislator Saeb Erekat, who accompanied Abbas, said that Hamas had pulled back from previous agreements. Erekat noted that a new Palestinian government ¡ª not Hamas as a group ¡ª would be expected to recognize Israel.

"The carrot (for Hamas) is improving the Palestinian situation," he said.

However, Hamas fears it will lose popular support if it softens its hardline positions too much and becomes indistinguishable from Fatah. Recent polls indicate that a majority of Palestinians don't want Hamas to recognize Israel, perhaps as a matter of pride, even though two-thirds also want Abbas to negotiate a peace deal with the Jewish state.

Ahmed Yousef, an aide to Haniyeh, suggested that Abbas misrepresented the platform of the emerging coalition in order to secure international support. The U.S. has said it expects any Palestinian government to meet three international demands ¡ª recognition of Israel, renunciation of violence and acceptance of previous agreements.

"Abu Mazen was in a bind," Yousef said, referring to Abbas. "With good will and good intentions, he wanted to lift the siege, so he said what he said. We are still with what we agreed upon. We have no choice but to form a national unity government. It is the way out of our internal crisis."

Hamas has struggled during six months in power, largely unable to pay the salaries of 165,000 civil servants, the backbone of the Palestinian labor force. After reaching the tentative agreement on a unity government, Abbas promised the government employees would get their first full salary at the start of Ramadan, which began Saturday. Abbas has received some foreign aid, particularly from the EU, to alleviate some of the greatest hardships.

However, with the coalition deal falling apart, workers weren't paid Saturday and it was not clear when they would be.

Haniyeh had little to offer his people in a televised Ramadan speech Saturday. "It is true that our conditions are tough and bitter," he said. "But we affirm that we are a strong-willed people, obstinate in the face of attempts to mold us or bring us to our knees."

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