A Palestinian businessman who serves in the Hamas-led cabinet retracted his resignation on Monday, after Prime Minister Ismail Haniyeh told him his resignation would be rejected.

Communications Minister Jamal Khodari, an independent who had Hamas support, resigned Sunday, but Haniyeh met him and told him the cabinet would reject his resignation.

Khodari said he was stepping down to promote formation of a national unity government, but his intentions were misunderstood, and so he decided to accept Haniyeh's request to remain in office, he said in a statement on Monday.

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Palestinian Authority Chairman Mahmoud Abbas could sack the Hamas-led Palestinian government if it does not agree to his terms by the end of the month, a senior official from Abbas's Fatah movement said on Monday.

Abbas has been pushing the elected Islamist group to accept a political program that would mean recognizing Israel, as a way to ease a Western aid embargo. Unable to pay official salaries, the government is facing protests and strikes.

"If the performance of the government continues like this, President Abu Mazen will use his constitutional powers to fire the government and pick a new government," said Azzam al-Ahmad, head of Fatah's parliamentary bloc, using Abbas's nickname.

"I expect that he will take this decision before the end of this month. He should do it, otherwise we will be destroyed," Ahmad said.

Abbas's office did not comment. He has not threatened to sack the government, a move that could prompt a resurgence of internal unrest. Hamas trounced Fatah in January parliamentary elections.

Western donors cut aid to the Palestinian Authority to pressure Hamas to renounce violence, recognize Israel and abide by interim peace deals signed by the umbrella Palestine Liberation Organisation, which is headed by Abbas.

So far Hamas has refused.

"What is required from Hamas is to take a political program that goes in line with that of the PLO in order to remove the reasons that led to the imposition of the siege," Ahmad said.