The new Palestinian unity government must clearly state that it recognizes Israel, the European Union's foreign policy chief Javier Solana said Thursday.

"There are many ways whereby you can express the recognition of Israel," Solana told The Associated Press. "I am not going to define what is the manner that would be the most appropriate, that's for them to decide, but in any case it has to be sufficiently clear that statement can be read and not only imagined."

Solana spoke in an interview before an EU summit where French President Jacques Chirac was expected to press other European leaders to support the Palestinian efforts to form a coalition government.

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Officials at the two-day summit were also expected to discuss Iran's nuclear program as the UN Security Council consults on additional sanctions after Tehran ignored a new ultimatum to stop uranium enrichment last month.

Asked if the United Nations should impose tougher sanctions, Solana said the international response to continued defiance logically will be an increase in the pressure on Iran.

Chirac said last month the power-sharing deal between Hamas and Fatah was a first step toward the full application of the conditions set by the EU, U.S. and others for the restoration of aid to the Palestinian government. Those conditions include recognition of Israel, renunciation of violence and acceptance of previous peace agreements.

The agreement struck last month in Mecca, Saudi Arabia, does not explicitly recognize Israel. However, it does pledge to respect past agreements and Palestinian officials have argued that should be enough to end the freeze on aid imposed after Hamas won elections last year.

Solana said the movement toward unity among the Palestinians was a good decision following outbreaks of fighting between Fatah and Hamas militants. He said Palestinian unity was also positive for Israel, but stressed that the EU would have to wait to see what the power-sharing
deal would mean in practice before making any decisions.

"These agreements have to be implemented," he said. "We'll have to make the final judgment ... when they are implemented."

Despite the Mecca agreement, Fatah and Hamas have failed to agree on the formation of a unity government with differences focused on who would be interior minister, controlling security forces.

The power-sharing deal is an attempt by the Palestinians to end the economic boycott which diverted aid from the Hamas-led government.

Although a new World Bank report says international aid increased slightly to $1.2 billion in 2006, much of that was in direct humanitarian payments. The withdrawal of international support for the government coincided with a drop of at least 8 percent in the Palestinians' per capita gross domestic product last year.

Abbas: PA gov't '99 percent' agreed upon
The Palestinian unity government is "99 percent" agreed upon, but will
not be announced until next week, Palestinian Authority Chairman Mahmoud Abbas said on Thursday after talks with his political rival, Prime Minister Ismail Haniyeh of Hamas.

After Saudi mediation, Hamas and Abbas's Fatah group agreed a month ago to forge a coalition cabinet in a bid to halt weeks of bloody factional fighting that cost more than 90 lives.

The cabinet line-up is likely to be unveiled only after Abbas has met Prime Minister Ehud Olmert early next week for talks which Palestinian officials say might cover extending a ceasefire with Israel from Gaza to the occupied West Bank.

Olmert plans to ask Abbas to account for e100 million in Palestinian tax money which Israel transferred to him earlier this year, the prime minister's spokeswoman Miri Eisen said.

"We have finished 99 percent of the issues of [forming] the government of national unity," Abbas told reporters in Gaza.

Disputes between Fatah and Hamas over the posts of interior minister and deputy prime minister appear to have been resolved. An official close to the talks said Haniyeh would pick one of two candidates approved by Abbas for the Interior Ministry.

A political source named the front-runner as Major General Jamal Abu Zayed, a former deputy chief of the Palestinian Authority's National Security Forces who took part in talks with Israeli counterparts over Israel's 2005 disengagement from Gaza.

The Interior Ministry commands an array of security forces, whose loyalties are now split between Fatah and Hamas.

The political source said Azzam al-Ahmed, who heads Fatah's parliamentary bloc, was likely to become deputy prime minister.

Abbas indicated that parliament could convene for a confidence vote in the new government the week after next.

"We hope that this will be an era of true national unity," he said. "The homeland is for all parties. The people have suffered a lot and we should alleviate their suffering."

Once the unity cabinet is formed, Abbas wants international donors to lift a crippling diplomatic and financial boycott imposed on the Palestinian Authority after the Islamist Hamas won elections and came to power a year ago.

Hamas has rejected demands by the Quartet of Middle East mediators - the United States, the European Union, Russia and the United Nations - to recognize Israel, renounce violence and accept existing interim peace accords.

Foreign donors have been channeling money directly to Abbas's office, bypassing the Hamas-led government. Israel also released some tax revenue to Abbas.

"We have heard the rumors [n how the money has been used] The prime minister will ask Abu Mazen [Abbas] when they meet early next week," Olmert's spokeswoman Eisen said.

Israel transferred the $100 million to an account controlled by Abbas and Finance Minister-designate Salam Fayyad.

Olmert's office said in January that $86 million of the total had been earmarked for security forces under Abbas to match $86 million pledged by the United States, but since frozen.

Western diplomats said some of the money had gone to pay salaries to government workers, possibly including Hamas members and supporters on the Palestinian Authority's payroll.

Officials have said Abbas and Haniyeh are sounding out militant groups on extending a truce declared by Palestinians in November, which largely halted clashes with Israel in Gaza. Some factions have continued firing rockets at Israel.

A leader of Islamic Jihad, which carried out a suicide bombing in Israel in January and did not join the Gaza truce, said on Wednesday the group opposed any new ceasefire while "Zionist aggression" was continuing in the West Bank.