Palestinian President Mahmoud Abbas has threatened to hold a referendum which could lead to a negotiated settlement with Israel if Fatah and Hamas cannot resolve their differences.
He gave the rival factions 10 days to agree on a common platform or he would submit a proposal from jailed leaders on how to end the Palestinian crisis to a referendum.
The initiative proposes that activities be 'confined to the territories occupied in 1967', which could signal an end to attacks inside Israel, and suggests the creation of a national unity government.
Mr Abbas' shock announcement came on the first day of cross-party talks aimed at resolving differences between his own Fatah movement and Hamas, who now head the government after winning recent elections.
The two days of 'national dialogue' between the main Palestinian factions are being conducted via videophone, owing to Israeli travel restrictions.
The talks come a day after four Palestinians were killed during an Israeli raid to capture a leading Islamic Jihad militant in Ramallah, and after a Hamas militant died during factional violence in Gaza.
Shootings and assassination attempts against two Fatah security chiefs have elicited repeated calls from leaders on both sides to avoid a descent into civil war, as each blames the other for sparking the troubles.
But despite declarations of goodwill, the gulf between Fatah and Hamas remains, exacerbated by a serious financial crisis facing the Palestinian Authority since the West suspended direct aid.
Agreement on peace process sought
Crucial differences also exist over how to address the Middle East peace process, with Fatah advocating negotiations with Israel and Hamas, which does not recognise Israel, promoting armed struggle to throw off occupation.
Fatah is likely to ask Hamas to recognise a peace plan adopted by the Arab League in 2002, which would entail implicit recognition of Israel, as a means to alleviate the international boycott of the Palestinians.
Meanwhile the Israeli Prime Minister, Ehud Olmert, has warned that Israel cannot wait forever for the Palestinians to engage in the peace process.
Addressing the US Congress in Washington, Mr Olmert appealed to the Palestinian parties to join his country as a willing partner in peace. But he said Israel would go forward without them, if necessary.
