By Nidal al-Mughrabi

GAZA (Reuters) – Palestinian President Mahmoud Abbas may appoint an emergency government or call early elections after the latest efforts to form a unity coalition with Hamas failed, his aides said on Tuesday.

A stalemate between Abbas and the Hamas-led government over agreeing a unity cabinet has triggered the worst internal fighting in a decade and stirred fears of civil war.

The Hamas Islamist movement denied talks were at a dead end, but said the latest initiative, presented in Gaza by Qatari Foreign Minister Sheikh Hamad bin Jassim bin Jabr al-Thani, was unacceptable because it included recognition of Israel.

Abbas media adviser Nabil Amr said the options open to Abbas to break the deadlock were sacking the government and appointing an emergency cabinet, calling for new elections or holding a referendum to let the Palestinian people decide what to do.

"The president will study them and pick which is best," Amr told a news conference in the West Bank city of Ramallah.

Palestinian Information Minister Youssef Rizqa of Hamas said he hoped contacts would not be broken off and that from Hamas’s point of view a unity government was still possible.

"We believe that there is a chance to pursue the dialogue from where it has ended," Rizqa told reporters in Gaza.

Mediation overnight by Qatar’s Sheikh Hamad in Gaza failed to resolve the row, Abbas’s aides added.

Amr said there was no point talking with Hamas, which has struggled to rule since the West imposed sanctions on the government for refusing to recognise Israel, renounce violence and accept interim peace deals.

Hamas says it will never recognise Israel. The group says it will only abide by peace agreements with the Jewish state that are in the "interests of the Palestinian people".

Palestinians had hoped formation of a unity government would end the crippling Western embargo, in place since Hamas took office after stunning Abbas’s Fatah movement to win January elections. Fatah seeks a negotiated peace with Israel.

Government spokesman Ghazi Hamad earlier said Abbas’s aides were trying to "poison the atmosphere".

"There is no room to talk about early elections or an emergency government," Hamad told a news conference.

Ahmed Youssef, a senior aide to Prime Minister Ismail Haniyeh of Hamas, said the movement rejected two points in proposals presented by Sheikh Hamad. This included agreeing to a two-state solution to resolve the conflict with Israel.

"As Islamists we cannot accept this," Youssef told Reuters.

Sheikh Hamad met Abbas and Haniyeh separately late on Monday night after earlier meeting Hamas leader Khaled Meshaal, who lives in exile in Damascus. Underscoring tensions, Abbas refused to meet Haniyeh.

Abbas remained in Gaza on Tuesday and attempts by Hamas to arrange talks with Haniyeh have so far failed, officials said. Abbas is due to return to Ramallah on Wednesday.

Fatah argues Abbas has the right to call early parliamentary elections or take other measures such as holding a referendum. Hamas disputes this.

Either option could spark renewed fighting.

Fifteen people have been killed in clashes since talks on a coalition government foundered, the worst internal violence since the start of Palestinian self-rule in 1994.

(Additional reporting by Wafa Amr in Ramallah); Reuters (IDS)