They agreed at the late-night meeting to continue their talks on Sunday on a document that would seal an understanding between the Palestinian factions, government spokesperson Ghazi Hamad told AFP, adding that "the atmosphere is good".

Abbas' spokesperson Nabil Abu Rudeina refused to tell journalists whether any agreement had been reached, saying simply: "The important thing is to reach an accord on the main questions that will get us out of this crisis."

He said it was necessary to reply to the demands of the international community which has suspended direct aid to the Palestinian Authority after the hardline Hamas government came into power at the end of March, calling for the Islamist movement to recognise Israel's right to existence and end violence.

Meanwhile, just hours after Abbas arrived in Gaza on Friday, Israeli special forces seized two wanted Palestinians in what was the country's first raid into the Gaza Strip since its withdrawal last year.

An army spokesperson said the two were militants in the Hamas movement who were plotting to attack Israel.

Hamas spokesperson Sami Abu Zuhri said that the detainees, brothers Osama and Mustafa Abu Muammar, were sons of a Hamas activist but were not themselves members of the radical Islamist movement.

The incursion came as Abbas was pushing Hamas to accept an initiative drawn up by jailed faction leaders which calls for a Palestinian state on land occupied in 1967, an end to attacks inside Israel and a national unity government.

If the current talks fail, Abbas, whose Fatah faction was ousted from power in a January vote, has promised to put the so-called prisoners' initiative to a July 26 referendum, which Hamas considers an attempt to overthrow its government.

In the days following Abbas' ultimatum, clashes erupted across the West Bank and Gaza between Hamas and Fatah loyalists. Scores died in shootouts and many feared a descent into full-scale civil war.

The Abbas-Haniya meeting could hasten an agreement in faction talks that were originally meant to last a week but which have now stretched into day 10, with significant differences still unresolved.

After earlier meetings failed to materialise, Hamas spokesperson Hamad had said the two leaders would meet on Saturday evening and that a final agreement was near.

Officials from both Fatah and Hamas have been making upbeat declarations for days, but with little to show for it.

Negotiators have remained at odds over crucial points, namely acceptance of a Palestinian state based on borders in place before the 1967 Arab-Israeli war, the supremacy of the Palestine Liberation Organisation and talks with Israel.

Since assuming power in March, the Hamas government has faced international sanctions over its refusal to recognise Israel and renounce violence. It is thought that agreeing to the Abbas-backed initiative could allow Hamas to satisfy international demands without alienating its hardline base.