Palestinian leaders say unity government near

GAZA, Mar 8 (Reuters) A Palestinian unity government is ''99 percent'' agreed, but will not be announced until next week, President Mahmoud Abbas said today 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 Israeli 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 100 million dollars 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.

CONFIDENCE VOTE 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 recognise Israel, renounce violence and accept existing interim peace accords.

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

''We have heard the rumours (on how the money has been used).

The prime minister will ask Abu Mazen when they meet early next week,'' Olmert's spokeswoman Eisen said, using the Palestinian president's nickname.

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

Olmert's office said in January that 86 million dollars of the total had been earmarked for security forces under Abbas to match 86 million dollars 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 into the Jewish state.

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.

REUTERS AKJ KP2002