Israeli Prime Minister Ehud Olmert said he was prepared to talk to a Palestinian unity government including Hamas if the group bow to international demands, in an interview published on Monday.
"If Hamas accepts the quartet conditions, I will sit down with them," Olmert was quoted as saying in a rare interview with the leading daily newspaper in the Palestinian territories, Al-Quds.
The so-called quartet of the European Union, Russia, the United Nations and the United States largely boycotts the current Hamas-led government, demanding it recognise Israel and past agreements, and formally renounce violence.
In a potential shift in approach, Olmert recalled that Israel had boycotted PLO leaders, such as current president Mahmud Abbas, before later negotiating with them after the Palestinian body recognised Israel in 1993.
"I have not checked the file of each minister" in the future Palestinian government, he said.
"Even Abu Mazen (Abbas) belongs to an organisation that we considered as terrorist in the past but he adopted new principles to which he remains faithful."
Olmert's comments appeared one day after feuding Palestinian factions agreed on a US-educated independent academic to head a unity cabinet, following five months of deadlock on finding a new administration to end a crippling boycott.
Mohammed Shbeir is a biologist and former head of the Islamic University in Gaza City. If formally tasked with the job by Abbas, he would replace Ismail Haniya of the Islamist movement Hamas.
Israel and the West, which brand Hamas a terrorist organisation, suspended financial payments to the Palestinian government after the movement took office last March following an overwhelming election victory.
As a result the cash-strapped Palestinians have sunk into unparalleled financial crisis with political bickering between Fatah and Hamas spilling over into deadly clashes that politicians hope will end with a unity government.
Speaking from Los Angeles, Israeli Foreign Minister Tzipi Livni was cautious about the Palestinian political developments, telling public radio that the Jewish state would judge the new administration on its acts.
"The question is not to know who will be a member of this government, but what it will do and if it will accept the international community's three conditions -- renounce terrorism and violence while recognising Israel and past (peace) deals," Livni said.
Meanwhile, Olmert also told Al-Quds he was prepared to see a "contiguous" Palestinian state alongside Israel but stressed he was against a return to the pre-1967 war borders that would imply all Jewish settlements be torn down.
"The principal objective remains a solution based on two states. You can plead for a return to the 1967 borders but that is not realistic and I am against it," he was quoted as saying.
"Instead, allow us to work to establishing a geographically contiguous Palestinian state north to south in the West Bank where any Palestinian can go from Jenin (north) to Hebron (south) without passing through an Israeli checkpoint or meeting a soldier," Olmert added.
He said the Palestinians could see such a state materialise "more quickly than they believe" provided there is an end to "terrorism".