Haniyeh calls for talks with Abbas's Fatah faction

GAZA, June 23 (Reuters) - Hamas leader Ismail Haniyeh, prime minister of the Palestinian government dismissed by President Mahmoud Abbas, called for power-sharing talks on Saturday with Fatah rivals routed from the Gaza Strip.

"There will be no dialogue with Hamas," responded Hussein al-Sheikh, a senior Fatah official in the West Bank.

Hamas seized control of Gaza over a week ago and faces isolation there, not only from Israel and Western powers, but also from the emergency cabinet Abbas had set up in the occupied West Bank as well as from Arab states like Egypt and Jordan.

Egyptian President Hosni Mubarak said on Saturday that Hamas's bloody takeover of Gaza amounted to a "coup against legitimacy" that damaged the Palestinian cause.

Israel plans to choke off all but humanitarian and basic supplies to Gaza, home to 1.5 million people, while opening the financial taps to Abbas's emergency government.

Israel will begin next week to transfer tax revenues to the emergency government in the West Bank and will ease some travel restrictions there.

Israeli Prime Minister Ehud Olmert will offer the gestures to Abbas on Monday when the leaders meet at the Egyptian Red Sea resort of Sharm el-Sheikh.

Envoys from the Quartet of Middle East mediators -- the United States, the European Union, Russia and the United Nations -- plan to meet in Jerusalem on Tuesday to discuss steps to bolster Abbas. One U.S.-backed proposal would name outgoing British Prime Minister Tony Blair to spearhead talks.

In the West Bank, Israeli troops on Saturday seized a top militant from the Islamist Hamas identified as the founder of the group's armed wing in the territory.

Hamas spokesman Sami Abu Zuhri said the arrest was proof "we are facing a dual conspiracy" in the West Bank, one led by Israel and the other by Abbas's security forces.

NO DIALOGUE

Abbas has ruled out any dialogue with Hamas, whom he accused of trying to assassinate him. Hamas has denied the allegations.

"The way out of the current situation is launching a Palestinian dialogue without pre-conditions," Haniyeh told Yemeni President Ali Abdullah Saleh by phone.

Haniyeh said these talks should be held "on the basis of no loser and no winner, and on the basis of no harm to anyone, and on the basis of a national unity government," according to Haniyeh's office.

A source close to Haniyeh said his statement was a call to form a new unity government with Fatah and other factions.

Haniyeh's office said Haniyeh also spoke by telephone to Egyptian intelligence chief Omar Suleiman and that "both sides stressed that there is no solution to the status quo except through dialogue".

Egyptian officials neither confirmed nor denied the call.

The Israeli cabinet was expected to approve on Sunday Olmert's request to recognise Abbas's emergency government and to resume the transfer of withheld Palestinian tax revenues. Israel is seeking assurances the money will not be used to support the Hamas administration in the Gaza Strip.

Israeli officials say some $400 million in tax revenues will be transferred to the emergency government in stages, short of the $700 million sought by Abbas. Israel says the rest of the money has been frozen by court order.

In talks with their Israeli counterparts, U.S. officials have requested that Israel ease restrictions on Palestinian access to the Jordan Valley, as well as remove barriers, checkpoints and roadblocks near major Palestinian population centres, including Hebron, Bethlehem and Nablus.

Israeli defence officials have mainly objected to removing the roadblocks and checkpoints near Nablus, arguing they are needed to prevent militants from criss-crossing the West Bank and infiltrating Israel.

Palestinians say the checkpoints are collective punishment.

Some aid groups said Abbas's decision to sever contacts with the Hamas leadership in Gaza was holding up negotiations on reopening Gaza's main commercial crossing at Karni to bring in humanitarian and other supplies.

"Food is being used as a political weapon," a senior Western diplomat involved in the negotiations said.