Palestinian leader Mahmoud Abbas will set tough conditions on Hamas before allowing it to form a government, a top Egyptian security official has said.
Mr Abbas has to decide how to proceed following Hamas' win
Hamas, which won elections last week, must end violence, recognise Israel and respect past deals, Omar Suleiman said.
He said it they did not meet those terms, Mr Abbas "will not ask them to form the government."
The conditions have not been confirmed by Mr Abbas, who has been holding talks with Egypt's President Hosni Mubarak.
But a Palestinian official speaking anonymously in Ramallah told reporters that recognising Israel was not a pre-requisite to form a government.
High-level diplomatic contacts are being held in the Egyptian capital, Cairo, to work out a response to the sweeping Hamas win in Palestinian parliamentary elections last Wednesday.
Israel's Foreign Minister Tzipi Livni also held talks with Mr Mubarak shortly after Mr Abbas.
A delegation from Hamas has also crossed into Egypt from Gaza and is due to hold talks in Cairo with Egyptian officials and the group's exiled leader Khaled Meshaal, who is based in Damascus.
Foreign donors have threatened to cut aid to the Palestinian Authority unless Hamas renounces violence and recognises Israel's right to exist.
Hamas leaders say they want a cessation of violence with Israel, but have ruled out recognising the legitimacy of the Jewish state.
"We shall never recognise the right of any power to rob us of our land and deny us our national rights," Mr Meshaal wrote in an article published in the UK on Monday.
"We shall never recognise the legitimacy of a Zionist state created on our soil."
Mr Suleiman, Egypt's intelligence chief who has brokered past Israeli-Palestinian deals, set three conditions before Hamas would be asked to form a Palestinian government.
"One, to stop the violence. Two, it should become a doctrine for them to be committed to all the agreements signed with Israel. Three, they have to recognise Israel," he said.
Hamas' charter implicitly calls for Israel's destruction
"If they don't do it, Abu Mazen [Mr Abbas] will not ask them to form the government. Abu Mazen will form the government with other parties."
It is not clear what lies behind the apparent discrepancy between the Egyptian and Palestinian positions as reported.
Visiting Israeli Foreign Minister Ms Livni described the situation as "very sensitive".
"We shared, President Mubarak and myself, ideas about the situation in the region and it was for me very enlightening," she said before meeting her counterpart Ahmed Abul Gheit.
Calls for Hamas to change its anti-Israeli ideology were echoed by US President George W Bush in his State of the Union address on Tuesday night.
He called on the Palestinian election victors to "recognise Israel, disarm, reject terrorism, and work for lasting peace".
Hamas has spearheaded the violence against Israeli targets since the start of the Palestinian intifada or uprising in 2000, but it has held to an unofficial truce for the last year.
Earlier, Israel confirmed it would suspend the payment of taxes and customs duties owed to the Palestinian Authority, staying that it would not deal with a government led by a "terrorist group".