Rival Palestinian groups agreed on Thursday to set up a unity government by the end of March after reconciliation talks aimed at ending long-running factional feuding, Palestinian officials said.
The agreement, which could lead to the creation of a Palestinian government acceptable to the international community, was announced by officials from two Palestinian factions involving in the Cairo-sponsored dialogue.
Jamil al-Majdalawi, an official with the leftist Popular Front for the Liberation of Palestine, told AFP the factions had formed several committees that would pave the way for the unity government.
"The committees will end their work and a Palestinian unity government will be formed by the end of March," he said
His comments were confirmed by Mohammed al-Hindi, deputy leader of the Palestinian Islamic Jihad.
The reconciliation talks opened after the main groups Fatah and Hamas agreed on confidence-building measures to resolve the fate of prisoners detained by both sides and stop a war of words being played out in the media.
The stakes are high as billions of dollars of funds to rebuild the Gaza Strip after Israel's war on the territory may be available if terms set by international donors can be met before an aid meeting next week in Egypt.
"We have no option before us but to succeed, and that will not difficult," Egyptian intelligence chief Omar Suleiman, who is mediating the talks grouping about a dozen Palestinian factions, said.
Fatah and Hamas have long been rivals but their feuding came to a head in June 2007 when the Islamists seized control of Gaza, routing forces loyal to Palestinian president Mahmud Abbas after days of deadly street battles.
Egypt had originally called for Palestinian reconciliation talks in November, but Hamas withdrew at the last minute, complaining that Fatah was continuing to arrest Hamas members in the West Bank.
The reconciliation process was relaunched by Egypt after Israel's 22-day war on Gaza that ended last month with more than 1,300 Palestinians killed and buildings and infrastructure throughout the impoverished territory destroyed.
British Foreign Secretary David Miliband, visiting Cairo on Wednesday, had called for the Palestinians to form a new government of "technocrats" to oversee political and economic reconstruction in readiness for elections.
Hopes of a positive outcome to the talks had been boosted after Wednesday's meeting between Fatah, which heads the Western-backed Palestinian Authority, and Hamas -- which is boycotted as a terrorist group by Israel and the West.
A joint statement said Fatah and Hamas had each agreed to release prisoners from the rival in several stages.
Hamas trounced Fatah in the 2006 Palestinian general election but its government was boycotted by Israel and the West, and attempts at forging a national unity government failed.
Thursday's conference, which brought in other Palestinian factions, stemmed from Egyptian proposals for a lasting ceasefire following Israel's onslaught on Gaza from December 27 to January 18.
Cross-border violence has continued since then as Egypt has tried in vain to mediate a truce between Hamas and Israel.
Hamas has said it was close to agreeing an 18-month truce with Israel but the talks were stalled after Israel Prime Minister Ehud Olmert conditioned the deal on the release of captured soldier Gilad Shalit.
Senior Israeli negotiator Ofer Dekel met Suleiman on Thursday to discuss efforts to release Shalit who was seized by Gaza militants in June 2006.
Hamas has demanded more than 1,000 Palestinian prisoners, many implicated in attacks on Israelis, in exchange.
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