Abbas asks Hamas to form Palestinian government

GAZA, Feb 21 (Reuters) President Mahmoud Abbas asked Hamas today to form a new Palestinian government and to pursue his peace agenda, but the Islamist militant group said talks with the Jewish state would be a waste of time.

Facing a financial crisis after Israel halted monthly tax payments to an already cash-strapped Palestinian Authority, Hamas's political leader Khaled Meshaal said Iran would play an increasing role in Palestinian affairs.

US and Israeli officials are concerned Tehran will try to exert control over a Hamas-led government, making the resumption of peace talks even more unlikely.

''Talking to Israel is a waste of time as long as there is no talk about withdrawing from Palestine,'' Meshaal said in Tehran ahead of talks in Gaza between Abbas and Hamas's prime minister-designate Ismail Haniyeh.

Israel has vowed to boycott Hamas, whose charter calls for the destruction of the Jewish state, until the militant group renounces violence, accepts past peace deals and recognises Israel's right to exist.

Hamas showed no sign of backing down. ''Resistance will continue as long as the occupation and aggression continues,'' Meshaal said at Tehran University. ''There is no recognition of Israel, no matter what the cost is.'' Abbas, whose long-dominant Fatah faction was crushed by Hamas in a January 25 parliamentary election, met with Haniyeh in Gaza and gave him a formal letter authorising him to form a government. Haniyeh, 43, has five weeks to complete the task.

Israeli interim Prime Minister Ehud Olmert said Israel would continue to ''fight terror with all our might ... on a daily basis'', but he still hoped for peace with Palestinians.

''Despite the slimmer chance, hope has not ceased,'' Olmert told Israel's Channel 1 television. ''I am responsible for ...

the struggle against Hamas and also protecting the hope and chance of reaching an agreement.'' MORE REUTERS PDS RAI0125