Israeli President Shimon Peres on Friday designated right-wing Likud party chairman Benjamin Netanyahu to make a coalition cabinet, casting a shadow over the sluggish Gaza ceasefire talks under the auspices of Egypt.

Egypt, who coaxed Hamas to accept a 18-month truce last week, has so far made no comment on Peres' choice, but the once- promising "breakthrough" of the Cairo-hosted talks has been virtually in tatters after a series of setbacks in the past few days.

The Israeli prime minister-designate rejects the two-state solution in the region and has vowed to "topple the Hamas regime" in the campaign trail.

And Egypt shares little friendship with Avigdor Lieberman, leader of the second largest right-wing party Yisrael Beiteinu, who had called for bombing Egypt's Aswan High Dam in the past.

Earlier on February 12, Hamas said in Cairo after intensive talks with Egyptian intelligence chief Omar Suleiman that the group had accepted an 18-month truce with Israel in the Gaza Strip and that a formal agreement might be announced in "two days."

However, outgoing Israeli Prime Minister Ehud Olmert responded two days later that there is no truce with Hamas before the release of Israeli soldier Gilad Shalit who was captured by Hamas- led militants in a cross-border raid in June 2006.

Hamas demands Israel pardon more than 1,000 Palestinians in a separate prisoner swap in exchange for Shalit's release. Israel refused the request for fear that some prisoners on the list might endanger the Jewish country.

The Israeli new condition on the much-anticipated Gaza ceasefire irked Egyptian President Hosni Mubarak, who has been a veteran mediator between Israel and Palestinians.

"The release of Israeli soldier Gilad Shalit is a separate issue and cannot be linked to the truce," Mubarak said Monday while meeting with his Bahraini counterpart Sheikh Hamad bin Isa al-Khalifa during his short visit to Bahraini.

Mubarak stressed that Egypt would continue the mediation efforts between the two sides despite the new backlashes.

Meanwhile, the last-ditch effort of Olmert to "clear his desk" and push his centrist Kadima party in the inconclusive general elections was apparently at odds with the country's chief negotiator of the truce deal.

Amos Gilad, the Israeli pointman of the Cairo-hosted separate talks with Hamas, accused unexpectedly Olmert of undermining Egypt 's efforts to broker a lull on Tuesday.

"I don't know what they are going to do... It's mad," Gilad was quoted by local daily Ma'ariv, adding that "Egypt remains nearly our last ally in the region. "

Nevertheless, Olmert's decision was later backed by the security cabinet, which voted on Wednesday for a Shalit-for-truce scheme.

Egypt responded by postponing the inter-Palestinian reconciliation talks, originally scheduled for February 22, after Israel rebuffed its efforts.

Fawzi Barhoum, a Hamas spokesman in Gaza, said Thursday that Egypt was hoping to broker the ceasefire first in order to focus on the Palestinian reconciliation.

Meanwhile, Egyptian Foreign Ministry spokesman Hossam Zaki said Thursday the Israeli decision is a "setback" to the ongoing indirect ceasefire talks brokered by Cairo and "undoubtedly would hamper clinching the aspired long-term truce."

Egypt has suggest a long-term ceasefire as of February 5 and a new round of inter-Palestinian dialogue on February 22 since January 18 when the 22-day Israeli offensive against Gaza ended, but both proposals failed due to the deliberately prolonged bargains and the subtle dynamics of Israeli politics.

With the Israeli cabinet-making costing another six weeks and the date for the inter-Palestinian dialogue undecided, the chance of a fruitless February is running high. The silver lining is the Egyptian-proposed international conference on Gaza reconstruction slated for March 2, which Zaki said Thursday "would be held on its due date."

Egypt has sent invitations to some 70 countries and French President Nicolas Sarkozy, Italian Prime Minister Silvio Berlusconi whose country holds the presidency of G8 and the US Secretary of State Hillary Clinton have decided to attend the meeting.

After the consecutive setbacks in a week, both Egypt and Hamas have to wait for a totally different partner on the other side of the negotiating table.

The Israeli-Palestinian peace process has sustained heavy blows, albeit unlikely to perish given the changeable nature of the Israeli politics that will see its fifth premier in 10 years and more important, the international consensus over Gaza reconstruction.