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Fatah officials said Friday that negotiations on a possible national unity government with Hamas have failed, blaming the Islamic movement for the impasse due to what they term impossible demands.

During the talks, Hamas insisted on keeping all the central ministerial positions, including prime minister.

Fatah members say the discussions over a unity government and the preservation of the tahdiyah ("lull" in the fighting with Israel) are all in the realm of spin orchestrated by Hamas and by Palestinian Authority Chairman Mahmoud Abbas, who seek to ward off a potential Israel Defense Forces operation in Gaza.

The Islamic movement is also demanding that the establishment of a unity government would signal the end of the international community's policy of isolating the Hamas-led PA.

The U.S. rejected this demand out of hand, notifying Abbas that Washington would not agree to recognize a unity government unless it fulfilled three conditions: recognition of Israel, official acceptance of all previously signed agreements between Jerusalem and the Palestinians, and forswearing all forms of violence.

Hamas official Osama al-Muzaini told Reuters that Prime Minister Ismail Haniyeh had handed Abbas a letter outlining Hamas's vision for a unity government.

"Any government must be headed by Hamas and the majority of seats should be for Hamas," Muzaini said. "It is reasonable given the fact that Hamas is the majority in parliament," he said, adding that they were not absolute conditions.

Azzam al-Ahmed, the head of Fatah's parliamentary bloc, said there could be no talks on a unity government until there was "a common political agenda", adding that Hamas leaders had made clear they had not changed their stance.

"Hamas is talking about annexing other groups to their government and not about forming a unity coalition. I say in the name of Fatah that we will not accept to be an annex to the government, we want to be partners," he said.

Palestinian militant groups have agreed to reinstate their temporary cease-fire deal with Israel, Abbas said on Thursday.

The decision includes Fatah and other factions of the Palestine Liberation Organization. Fatah had already halted its rocket fire from the Gaza Strip into Israel.

The temporary cease-fire, however, does not include Islamic Jihad or breakaway Fatah factions now operating in Gaza under with the inspiration of Hezbollah.

Early Friday, an Israel Air Force strike hit a metal workshop in Gaza City, wounding two people, one militant and one bystander, Palestinian officials said. The Israeli army said the strike hit a weapons manufacturing facility where rockets were made.

Abbas, at a graduation ceremony for the Force 17 presidential guard, said the factions secured the deal on Wednesday night. Abbas hinted the deal is meant to prevent Israel from exploiting circumstances in which it might send a military force into Gaza.