Foreign Minister Tzipi Livni welcomed news on Friday that Palestinian Prime Minister Ismail Haniyeh from Hamas may step aside and allow the Palestinian Authority to form a moderate government willing to work with Israel.

"There is hope for the moderates, those who believe in the two-state solution," Livni, who is also deputy prime minister, told reporters while on a visit to Los Angeles.

Earlier on Friday, Haniyeh met in Gaza with Palestinian Authority Chairman Mahmoud Abbas to discuss the basic outline for the new unity government.

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In a press conference after the meeting, Haniyeh said he may not head a unity government Hamas was trying to forge with the rival Fatah faction as a way to lift a Western embargo.

Haniyeh added that the unity government will be based on the "prisoner's manifesto," a document authored by leading Palestinians held in Israeli prisons which hints at recognition of Israel and a two-state solution.

The final draft will be concluded in no later than three weeks, Haniyeh said.

He emphasized that his party refuses to negotiate on any concessions. He also said that Hamas will not ask for senior ministerial positions in the new government and denied reports that he gave Abbas names of alternative replacements for his position.

On Thursday, Abbas and the exiled leader of the Hamas political bureau, Khaled Meshal, spoke on the phone - the first time the two have had any contact since Meshal made a speech in Damascus attacking Abbas' leadership.

Palestinian sources told Haaretz on Thursday the two agreed to hold a meeting, probably in Cairo, along with representatives of other Palestinian factions, after Abbas signs an agreement with Haniyeh on the formation of a new Palestinian government of national unity.

It was also agreed that the new government of technocrats would not be brought before the Palestinian Legislative Council (the Palestinian Authority parliament) for approval before the release of all Hamas ministers and legislators held by Israel since the abduction of IDF soldier Gilad Shalit in June.

The sources said that after Abbas and Haniyeh agree on the choice of the new prime minister, there will be several more weeks of negotiations for unity government formation. In parallel, talks will continue on Shalit's release.

Egypt's chief of intelligence, Omar Suleiman, is expected to visit the Gaza Strip for talks with Hamas and Fatah representatives on the formation of a new government and the release of the soldier.

Meanwhile, Abbas returned Thursday night to Ramallah after being presented with the names of three Hamas candidates to head a cabinet of technocrats. The three are Zahar Kahil, president of University of Palestine International (identified with Hamas); Khaled al-Hindi, secretary general of the Islamic University in Gaza; and Mohammad Shubair, president of the Islamic University.

On Saturday, Haniyeh will begin talks with various Palestinian factions on the technocrat cabinet, and he is expected to present Abbas with a consensus candidate for premier by the middle of next week. Palestinian sources claimed the Beit Hanun incident advanced the idea of a unity government and strengthened the willingness of Hamas and Fatah to compromise.

Abbas is scheduled to participate in Ramallah in talks on convening Fatah's sixth convention, 17 years after the last one was held. Former PA prime minister Ahmed Qureia revealed Thursday that the organization plans to hold the convention in the first half of 2007.

Qureia told Israeli reporters that in order to salvage the peace process, the U.S. and the other members of the Quartet - The United Nations, Russia the European Union - must be much more involved in the political process. He called on U.S. President George W. Bush to convene an international peace conference with representatives of countries from the region and present a new vision that would allow implementation of the road map.