Rival Palestinian factions made progress during their on-going unity talks in Cairo and observers described the atmosphere of the talks as positive.

Azzam al-Ahmad, a leader of Palestinian President Mahmoud Abbas' Fatah movement, said an agreement was reached with Islamic Hamas movement during the first session of the fourth round of the dialogue which started Monday.

"We agreed that the reconciliation deal would be one package that includes all the controversial issues," said al-Ahmad, referring to the core issues of forming a unity government, reforming the security services, the Palestinian Liberation Organization (PLO) and holding elections.

The dialogue aims at reconciling Hamas and Fatah that have been locked in a power struggle since the Islamic movement won the parliamentary elections in 2006.

In mid-2007, Hamas routed pro-Abbas forces and ousted his Fatah movement in deadly fighting in the Gaza Strip.

As the two movements failed to agree on the political program of the unity government in previous dialogue sessions, al-Ahmad said another agreement was reached to adopt an Egyptian proposal on the issue of the government.

"We have agreed that the Egyptian paper would be the mechanism to carry out the (reconciliation) agreement," al-Ahamd added.

The Egyptian proposal calls for forming a national committee to liaise between Hamas administration of Gaza and the Abbas-backed government in the West Bank. This committee would stay until new elections are held.

The failure to agree on a platform for the government goes back to the different charters of Hamas and Fatah. As Fatah believes that the government must be acceptable to the international community, Hamas said such a government would reflect recognition of Israel.