Palestinian President Mahmoud Abbas struck a deal Monday to share power with the militant Islamic Hamas, an accord that could restore international aid and could lead to contacts with Israel.

The breakthrough compromise falls short of international demands that Hamas fully renounce violence, but Israeli officials still voiced cautious support for the accord.

Hamas, which is committed to Israel's destruction, swept to victory in January legislative elections, defeating Fatah, and formed a government by itself. The West and Israel reacted by cutting off hundreds of millions of dollars in aid, accusing Hamas of being a terrorist group.

Initially, Palestinians held the West and Israel to blame for their misfortune, but in recent weeks, they have directed that criticism at the government. Tens of thousands of civil servants launched a strike this month to protest the government's failure to pay them. A two-month Israeli offensive in the Gaza Strip — begun after Hamas-linked militants infiltrated Israel and captured a soldier — has added to the Palestinians' misery.

After months of on-and-off talks, Abbas, the moderate Fatah leader, and Prime Minister Ismail Haniyeh of Hamas announced the accord Monday.

"The continuous efforts to form a national unity government have ended successfully with the announcement of a political program for this government," Abbas told Palestinian television. "Efforts in the next few days will continue to complete the formation of the national unity government."

Abbas aide Nabil Abu Rdeneh said the president would dissolve the Hamas-led government within 48 hours to clear the way for the formation of a coalition.

Haniyeh, who said earlier that he would retain his post in the new government, confirmed the two parties planned to rule together.

"I bring good news to the Palestinian people, and I feel proud and content that at this important moment we establish a national coalition government," Haniyeh said.

Both Fatah and Hamas officials said their deal was based on a proposal — formulated last spring by prominent prisoners held by Israel — that many have interpreted to imply recognition of Israel.

That proposal calls for a Palestinian state alongside Israel — effectively abandoning the Hamas goal of destroying the Jewish state — and accepts U.N. resolutions that call for compromise with Israel. Hamas also would allow Abbas to handle all dealings with Israel.

In addition, it also endorses a wider Arab plan seeking a comprehensive peace agreement with Israel. Arab allies of the U.S. are expected to present the plan to the U.N. Security Council this month.

Israel has been cool to the Arab plan, since it would require a withdrawal from all territories captured in the 1967 Mideast War, including east Jerusalem. Israel wants to adjust the borders to include some main Jewish settlements.

Foreign Minister Tzipi Livni said Israel would maintain its tough line with Hamas. "It doesn't matter what Palestinian government there may be, it must fulfill the three conditions" set by the international community, she said in Jerusalem. She was referring to the demands that Hamas renounce violence, recognize Israel's right to exist and accept previous peace agreements.

She also said budding ties with Abbas could be in danger if Hamas does not comply. "Abu Mazen and Fatah cannot join a government that does not fulfill the conditions," she said, referring to Abbas. "If he does, I feel we will have a problem."

Prodded by visiting British Prime Minister Tony Blair, Abbas and Israeli Prime Minister Ehud Olmert both said they were prepared to hold their first working meeting.

In Beirut, Lebanon, a spokesman for Blair said the British leader regarded the Palestinian leaders' announcement as "potentially, a hugely significant statement."

Monday's agreement indicated that Hamas has finally buckled under the crushing international sanctions, imposed six months ago to pressure it to moderate. Without the vital international aid, the government was unable to pay salaries to its tens of thousands of civil servants. The government is the largest employer in the Palestinian areas, and the economic crisis caused widespread hardship.

"When we came to power, we wanted to achieve our Islamic program — to reduce people's suffering, to eliminate corruption, anarchy and lack of security, and of course, to find a resolution for the Palestinian issue," said Mushir al-Masri, a Hamas lawmaker. "Because of the embargo we faced, and its result on the Palestinian street, we couldn't achieve all of that."

A smaller Islamic militant group, Islamic Jihad, said it would not join the government, but spokesman Khader Habib said if a cease-fire with Israel is declared, "we will not sing out of tune."

Palestinian officials have been looking to Europe to lead the way in lifting the sanctions. European leaders have recently welcomed the Palestinian efforts to form a unity government.

Mouin Rabbani, an analyst with the International Crisis Group in Jordan, said Monday's agreement was a "positive signal" but by no means meets the requirements of the U.S. and the European Union.

While European countries have signaled they will reassess their policies toward a Palestinian national unity government, the signals are "far short of a formal policy commitment, and will be put to the test," he said.