In their sharpest dispute yet, Palestinian President Mahmoud Abbas on Friday blocked the ruling Hamas party's plans to set up a shadow security force made up of militants and headed by the No. 2 fugitive on Israel's wanted list.

Abbas, who favors peace talks with Israel, and Hamas, which has refused to renounce its calls for the Jewish state's destruction, have been on a collision course since the militant group took control of parliament and Cabinet earlier this year.

The shadow force was seen as an attempt to counter Abbas' moves to take control of all of the powerful Palestinian security forces.

But Abbas, like Israel and the international community, was outraged by the notion of a militants' army headed by the leader of a group that is a key player in ongoing rocket attacks on Israel and is suspected in a deadly 2003 bombing of an American convoy in the Gaza Strip.

On Friday, he used his considerable power to issue a presidential decree vetoing the plan announced Thursday by Interior Minister Said Siyam of Hamas.

In a letter to Prime Minister Ismail Haniyeh of Hamas on Friday, Abbas wrote that "we have learned through the media that the interior minister issued decisions violating the law. "

"All the officers, soldiers and security personnel are asked not to abide by these decisions and to consider them null and void," Abbas said in a letter obtained by The Associated Press.

Haniyeh was to meet with Siyam later Friday to weigh a response.

Egypt, meanwhile, invited Israeli leader Ehud Olmert on Friday for an official visit even before he has set up his incoming government, signaling it is eager to do business with him.

Egyptian President Hosni Mubarak extended the invitation in a telephone call to Olmert, and a date for the visit is to be set next week, aides to the Israeli leader said. It would be the first meeting between Israeli and Egyptian leaders since February 2005, when then-Prime Minister Ariel Sharon attended a Mubarak-brokered summit that produced a truce between Israel and Palestinian factions.

Hamas has largely adhered to that truce despite its violent rhetoric.

Egypt's MENA news agency reported the phone call, but did not mention any official invitation to visit.

Abbas and Hamas have been wrangling over authorities since the Islamic militant group won January parliament elections. After Hamas' victory, Abbas took over the state-run media, the Palestinian Investment Fund and the authority controlling borders.

He also set up a new internal security agency that cemented his power over the six existing security forces.

The army Hamas wanted to set up was to be made up of militants from various factions and headed by Jamal Abu Samhadana, 43, a founding member of the Popular Resistance Committees who served a year in Palestinian jails for involvement in militant activity.

Abu Samhadana, who refused to discuss Abbas' decree, told The AP he would continue his resistance despite his appointment to head the militants' army.

"I am not going to give up resistance," he said. "There is no contradiction between the appointment and resistance. I am a fighter who is protecting the homeland."

During five years of fighting, Israel has killed dozens of militants in targeted missile attacks. Abu Samhadana is high on Israel's wanted list, and Israel has tried to kill him in targeted strikes.

"We have old scores to settle with this murderer," Israeli Cabinet minister Zeev Boim told Israel Radio. "He has no immunity and we will have to settle this score sooner or later."

Hamas has complained that Abbas' consolidation of control has reduced the militant group's authorities to paying salaries for some 165,000 government employees — an obligation it cannot meet because the West has cut off vital financial aid to protest Hamas' refusal to disarm and recognize Israel.

The European Union said Friday its freeze of budget aid for the Palestinian Authority stays in effect indefinitely. While the EU would like to resume its annual aid of $617 million, "there can be no business as usual" with a government that will not renounce violence or recognize Israel, EU spokeswoman Emma Udwin said in Brussels.

Meanwhile, a senior Israeli military commander heated up the pressure on Hamas by saying Israel is actively preparing to reoccupy Gaza.

Officials said there were no immediate plans to strike. But the comments reflected rising Israeli impatience with the Islamic militant group, which has refused to renounce violence, defended a suicide bombing in Tel Aviv this week and failed to halt militant rocket fire from Gaza.

"If the price we have to pay becomes unreasonable as a result of increased attacks, then we shall have to take all steps, including occupying the Gaza Strip," Maj. Gen. Yoav Galant, head of Israel's southern command, told the Maariv daily.

Israel already has made two brief incursions into Gaza in recent days to search for explosives. But defense officials said the odds of a large-scale operation or full occupation are slim because of financial and political constraints.

Israel withdrew from Gaza last summer, ending 38 years of military occupation. Since the pullout, militants have fired rockets into southern Israel on nearly a daily basis.

Galant said the army is preparing for a range of responses to the rocket fire.

"It could be anything from a partial occupation of the Gaza Strip to a full occupation," he told Maariv, adding that the plans have been approved by senior officials, including Defense Minister Shaul Mofaz.

Abbas told Turkey's state-run news agency Friday that reinvasion of the Gaza Strip would be a "deadly mistake."