Palestinian militant group Hamas has said it will not join a planned national unity government if recognising Israel is a condition.
Mr Abbas is seeking a coalition between Fatah and Hamas
It follows a speech by Palestinian leader Mahmoud Abbas in which he said the government would recognise Israel and renounce violence.
Hamas spokesmen said there had been no change in the position on Israel.
Mr Abbas is seeking a government which includes his Fatah movement and Hamas, which won elections in January.
Middle East peace negotiators are insisting on recognition of Israel.
Much international aid to the Palestinians was cut off when Hamas took power, because of its refusal to recognise Israel and renounce violence.
But Prime Minister Ismail Haniya, in a mosque sermon in Gaza City on Friday, said: "I personally will not head any government that recognises Israel."
Earlier, Ahmed Youssef, a senior adviser to Mr Haniya, said there would be no explicit recognition of Israel, but Hamas was prepared to agree to a 10-year truce with the Jewish state.
"The government and the Hamas movement will be against recognising Israel. Our position to solve the crisis is a 10-year truce which will be good for stability and prosperity," he said.
The BBC's Jon Leyne in Jerusalem says recognition of Israel is the crucial issue that has so far deadlocked negotiations over forming the government.
And with conditions steadily deteriorating in the West Bank and Gaza, our correspondent says, the question now is whether all sides want to find a compromise, or whether this is going to be an issue continuing to block all political progress.
UN Secretary General Kofi Annan has warned that failure to resolve the Middle East conflict is damaging Security Council credibility.
'Victims of history'
Mr Abbas made his comments in an address to the UN General Assembly on Thursday.
He re-affirmed the historic statements of mutual recognition made by then Palestinian leader Yasser Arafat and Israeli Prime Minister Yitzhak Rabin in 1993.
"These two letters contain a reciprocal recognition between the PLO [Palestine Liberation Organisation] and Israel, reject violence and call for negotiations to reach a permanent settlement with the creation of an independent Palestinian state next to Israel," he said.
Mr Abbas said the unity government would commit itself to imposing security and order, ending the phenomenon of multiple militias, indiscipline and chaos.
These commitments should lead to the resumption of withheld aid, Mr Abbas added.
Echoing Arafat's address to the UN in 1974, Mr Abbas said this moment represented an olive branch of opportunity.
"I come to you bearing the wounds of a people who seek to live a normal life... not be victims of the cruelty of history," he said.
"I simply want tomorrow to be better than today. I want Palestine to be independent and sovereign... Do not let the olive branch fall from my hand."
His comments came as the Security Council met to discuss the Middle East conflict in an attempt to get the peace process back on track.
Mr Annan told the assembled ministers that peace between a new Palestinian state and a secure Israel remained distant and ill-defined.
"Like no other conflict, the Arab-Israeli conflict carries a powerful symbolic and emotional charge for people throughout the world," he said.
"And our continued failure to resolve this conflict calls into question the legitimacy and the effectiveness of this council itself."