PALESTINE START FORMING ITS GOVERNMENT.

Hamas presents PM choice to Abbas.

Ismail Haniya has dismissed Israel's economic sanctions. Hamas leaders have officially presented Ismail Haniya as their choice for prime minister during talks in Gaza with Palestinian leader Mahmoud Abbas. Mr Abbas was to ask Mr Haniya on Tuesday to start the formation of the government, said senior Hamas leader Mahmoud Zahhar after the talks. Hamas says it wants a coalition, and Mr Zahhar has been meeting faction leaders to enlist their support. Mr Abbas' Fatah party has refused to join as has militant Islamic Jihad.
Israel has announced a range of punitive measures against a Hamas-dominated Palestinian Authority. The UN envoy to the Middle East raised objections to Israel's move to withhold tax and customs duties which are paid monthly to the cash-strapped Palestinian Authority.

Carter urges contact
Press anxiety over Hamas

Israel backed by the United States and the European Union consider Hamas a terrorist organisation because of its past suicide bombings against Israeli targets. Hamas calls the attacks legitimate resistance. Mr Haniya has dismissed the effect of Israeli financial restrictions on the PA. He told the BBC that Arab and Islamic states would offset a drop in Western aid and said Hamas would not disarm or recognise Israel. Egypt's Muslim Brotherhood has announced an international fund-raising campaign and Iran has called for pan-Islamic support. Hamas controls 74 of 132 parliament seats and could govern alone - even though nine of its candidates are currently held in Israeli jails. Hamas leaders have said they want to form a coalition that would include Mr Abbas's Fatah Party.
It is not clear who will take part in a Hamas-led coalition.Mahmoud Zahhar met representatives of other factions in Gaza and said the group expected to form a government in the next two weeks. "We are optimistic about establishing a national unity government that can represent a national attitude," Mr Zahhar said after holding talks with the Popular Front for the Liberation of Palestine. However, Fatah officials say they will remain in opposition, as have members of the Islamic Jihad militant group, which like Hamas does not recognise Israel's legitimacy. The Popular Front for the Liberation of Palestine (PLFP) says it has agreed in principle to join a Hamas-led government.

Israel's acting Prime Minister Ehud Olmert has said Israel would "not hold contacts with the administration in which Hamas plays any part - small, large or permanent". The head of Israel's Shin Bet security service, Yuval Diskin, told Israeli parliamentarians on Monday that a Hamas-led Palestinian Authority posed a serious danger to Israel. "A Hamas state on the borders of Israel is a real threat. This will be a radical Sunni state that radical forces can reach from around the world," Mr Diskin told the parliament's foreign affairs and defence committee. "Therefore a Hamas state like this, with military and terror capabilities, is a strategic threat to Israel."

BBC NEWS REPORT.