Despondent Palestinians face future with unease

GAZA, Oct 23 (Reuters) Fear of an escalating power struggle between Hamas and President Mahmoud Abbas added to the gloom today for Palestinians marking a Muslim holiday that would normally be a festival of joy.

The two sides are pointed towards a possible showdown after the Eid al-Fitr holiday, which falls at the end of the holy fasting month of Ramadan and is one of the two biggest celebrations in the Muslim calendar.

Meanwhile, Israeli leaders are considering whether to expand an offensive in the Gaza Strip aimed at recovering a captured soldier and stopping cross-border rocket fire.

Eid al-Fitr holiday began today and ends on Wednesday.

''We are afraid that things are headed for the worse,'' said Samir Ali, 31, a Gaza City taxi driver. ''The situation has been worsened by the internal fighting. I wish I could know what they are fighting for.'' Tension has grown sharply between Hamas, the governing Islamist group, and moderate President Abbas's Fatah in the weeks since talks on forming a coalition collapsed. Internal violence left at least 20 dead and stirred talk of civil war.

Despite appeals for calm, fears are rife of bloodshed that would further undermine Palestinian hopes of statehood.

Hamas has ruled out even implicit recognition of Israel, which it seeks to destroy, under any deal with Abbas, who demands that the group soften its line as a way to ease a US-led aid embargo crippling the Palestinian Authority.

Though talks on a unity government may be resumed after the holiday, there is no sign they would make more progress now.

''It is dangerous to think about failure,'' said Gaza-based political analyst Hani Habib. ''Failure will lead to the continuation of the current political crisis and as a result there may be a security and military crisis.'' MORE REUTERS MQA HS1741