ANALYSIS: Mideast Peace Remains Elusive

Palestinians inspect the wreckage of a van after it was hit by an Israeli missile strike in Gaza City early Saturday Nov. 4, 2006. The missile destroyed a minivan, killing a Hamas militant and seriously wounding two others traveling in the vehicle, the group said.(AP Photo/Hatem Moussa) (Hatem Moussa - AP)

JERUSALEM -- Negotiators are reporting progress on efforts to form a more moderate Palestinian government and swap prisoners in Israeli custody for a captured Israeli soldier _ two issues that could help reverse an alarming deterioration in Israeli-Palestinian relations.

But this week's violence in the Gaza town of Beit Hanoun, which included Israeli forces opening fire Friday on women serving as human shields for militants holed up at a mosque, highlighted the challenge for anyone interested in peace.

Both U.S. and Israeli officials have made clear that they see no possibility for peace overtures unless the Palestinians' ruling Hamas movement accepts the three conditions put forth by the so-called "quartet" of international Mideast negotiators _ recognizing Israel, accepting past peace accords and renouncing violence.

After weeks of up-and-down negotiations, both Hamas and the rival Fatah Party of President Mahmoud Abbas say they are close to a deal to form a national unity government that many Palestinians hope could help end a crippling international aid boycott.

The agreement would be based on a document put together by prominent Palestinians jailed in Israel calling for a Palestinian state in the West Bank and Gaza. It's doubtful, however, that the so-called "prisoners' document" will be enough to satisfy demands that Hamas recognize Israel _ the main sticking point in the West's refusal to lift its boycott.

The document has vague references to respecting past peace accords and accepting a Palestinian state only in the lands captured by Israel in the 1967 Mideast War. But there's no explicit recognition of the Jewish state.

The Palestinians are also hoping a prisoner swap with Israel could help reduce tensions and get aid flowing again. The IMF reported this week that the Palestinian Authority's income fell by 60 percent since Hamas took power in March.

A senior Israeli official, speaking on condition of anonymity because he is not an official spokesman, said "we are closer than we were two or three weeks ago" to swapping prisoners for Cpl. Gilad Shalit, the young soldier captured by Hamas-linked militants on June 25.

Israeli officials refused to give details about the negotiations, conducted through Egyptian mediators to avoid direct contact between Israel and Hamas, which Israel brands a terrorist organization. However, a senior Fatah official with knowledge of the contacts said Israel had softened its previous position refusing to discuss the criteria for which prisoners would be freed in exchange for Shalit.

Moussa Abu Marzouk, the Syria-based deputy to Hamas political chief Khaled Mashaal, complained that Israel was dragging its feet on the deal, but nevertheless predicted "there will be a prisoner swap."

Abu Marzouk told The Associated Press by phone in Damascus that talks held in Cairo this week between a Hamas delegation and Egypt's chief of intelligence, Omar Suleiman, about the captured Israeli and the formation of a unity government were "good." He did not elaborate.

An official close to the talks, speaking on condition of anonymity because of the sensitive nature of the contacts, said Hamas doesn't trust Israel to live up to its part of the deal, and wants Shalit handed over to a third party until Israel fulfills its part of the exchange.