Hamas said on Wednesday it would hold reconciliation talks with the Fatah faction of Palestinian President Mahmoud Abbas and hinted it might be ready to cede control of the Gaza Strip, which it seized in June.

Abbas, who is pursuing a peace deal with Israel, has ruled out dialogue with Islamist Hamas unless it submits anew to his authority and gives up Gaza. Israel and the West want Hamas shunned until it accepts coexistence with the Jewish state. "There is a serious movement in the realm of Palestinian dialogue and we have agreed to hold a dialogue with Fatah in one of the Arab capitals," said Ismail Haniyeh, who was Hamas prime minister in the former government that Abbas declared void.

"Our administration in Gaza is temporary," Haniyeh said in an urgent bulletin posted on a pro-Hamas Web site. He said the talks would be held after Eid al-Fitr, the Muslim festival that ends the holy month of Ramadan and falls on Friday or Saturday.

Foreign sanctions and an Israeli blockade have driven Gaza ever deeper into poverty and isolation, and put pressure on Hamas to find a breakthrough without compromising its doctrines.

An official involved in Hamas-Fatah mediation but affiliated with neither group confirmed there would be a meeting as early as next week, and said Cairo was the likely venue.

But a senior Abbas aide, Ahmed Abdel-Rahman, denied talks had been set and accused Hamas, which has been vying with Fatah for Palestinian support since the factions fought a brief civil war in June, of trying to mislead the public.

"We have not heard about such a dialogue," Abdel-Rahman, who is also a Fatah spokesman, told Reuters. Hamas, he said, wanted to "create a false positive atmosphere in Gaza so they can say they are the advocates of dialogue and Fatah rejects it".

Abbas has made a precondition of factional talks that Hamas relinquishes the Fatah-linked security compound its forces overran. A senior Hamas official, Sami Abu Zuhri, said such a gesture could come only as a result of dialogue being under way.

Israel, whose prime minister, Ehud Olmert, will attend a U.S.-sponsored conference on Palestinian statehood with Abbas next month, opposes reconciliation between Fatah and Hamas.

ABBAS OUTLINES PALESTINE VISION

"Israel believes that Hamas should be kept out of the game as it is a consistent detriment to any chance for progress between Israel and the Palestinians," Olmert spokesman David Baker said in Jerusalem.

Haniyeh's statement came hours after Abbas, apparently staking out a position ahead of the November conference, said a future Palestinian state in the West Bank and Gaza must cover the same amount of land as Israel seized there 40 years ago.

Abbas also raised the possibility of amending the pre-1967 lines as long as Palestinians ended up controlling territory equal to what Israeli forces captured in a war that year.

All Israeli governments since the 1967 conflict have ruled out a complete pullback to pre-war boundaries, citing security concerns and the Jewish state's claim to all of Jerusalem as its capital. Palestinians want the eastern part of the holy city, which Israel annexed, as capital of their future state.

The U.S. government has backed the idea of a small territorial exchange between Israel and a future Palestine so that Palestinians would be compensated for Jewish settlement blocs that would remain under Israeli control in any peace deal.

Negotiations on core issues such as the borders of a Palestinian state and the future of Jerusalem and millions of Palestinian refugees broke down in 2001 amid surging violence. (Additional reporting by Mohammed Assadi in Ramallah and Dan Williams in Jerusalem)