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Hamas put the final touches on a new Palestinian cabinet on Saturday as its leader abroad said the Islamic militant group was prepared for all out war with Israel if the Jewish state opted for conflict.
More moderate factions, including President Mahmoud Abbas's Fatah movement, refused to join a Hamas government.
Hamas said it would complete its cabinet line-up on Saturday before giving the list to Abbas, who was unable to convince the surprise winner of the Jan. 25 election to accept past interim peace deals with Israel.
Hamas's inability to win over more moderate factions could make it harder to rule and could also bolster efforts by Israel and the United States to isolate the new government.
Hamas's leader-in-exile, Khaled Meshaal, said running the Palestinian Authority was not its ultimate goal.
"We and the Zionists have a date with destiny. If they want a fight, we are ready for it. If they want a war, we are the sons of war. If they want a struggle, we are for it to the end," Meshaal declared in Damascus.
Hamas is sworn to Israel's destruction and has not met any demands from Israel or the "Quartet" group of Middle East mediators to recognise the Jewish state, renounce violence and accept past agreements, conditions for international aid.
The US envoy to the Quartet, which also includes the European Union, Russia and the United Nations, said on Friday that Hamas had not given any sign it was ready to shift policy.
"To this date, I have not seen a positive Hamas reaction in respect of any of these principles," David Welch told Reuters.
Hamas says Israel, as an occupying power, must take the first step and recognise Palestinian rights.
In northern Gaza, two Palestinians died and three were wounded in a mysterious explosion, Palestinian security sources said. The sources said the blast may have occurred while they were preparing an explosive device.
Aid agencies fear the West Bank and Gaza will slip into economic depression and chaos if donors cut aid and Israel tightens restrictions after a Hamas-led government is in place.
Hundreds of Palestinians lined up outside bakeries in Gaza on Friday to buy bread as shop owners said they were running out of flour due to Israel's closure of a crossing into the strip.
Israel has been closing Karni, the main commercial crossing with Gaza, on and off for the last two months, citing security concerns.
To avert the collapse of the Palestinian economy and avoid dealing directly with Hamas, donor countries were looking into the possibility of paying salaries direct to 140,000 Palestinian Authority employees, Western diplomats said.
Hamas defeated Abbas's long-dominant Fatah on a platform of cleaning up Palestinian government and not giving up its armed struggle for statehood.
Officials said coalition talks foundered partly because Hamas rebuffed demands by Fatah and others to abide by interim peace deals with Israel. The Jewish state refuses to negotiate with Hamas and has cut tax transfers to the Palestinians.
"The government will be ready tomorrow with its formation and its ministers but we will not announce the government before we hand it over to the president," Hamas spokesman Salah al-Bardaweel said.
Abbas plans to visit Gaza for talks on Saturday.
Fatah officials said the faction's ruling Central Committee decided late on Thursday not to join a Hamas government.
Hamas taking top portfolios
Hamas's choice for foreign minister will be Mahmoud al-Zahar, a top leader in Gaza whom Israel has tried to assassinate, Hamas sources said.
Another Hamas leader, Saeed Seyam, would become interior minister, giving him control over three Palestinian security agencies, the sources added.
Abbas will later present the cabinet list for a confidence vote to parliament, where Hamas has an outright majority.
In Damascus, Meshaal took a swipe at Fatah for its interim peace deals with Israel in the 1990s.
He also upheld the right of Palestinian refugees and their descendants to return to the homes they lost in the 1948 war- a red-button issue that has bedevilled past peace negotiations.
"I tell all the Palestinians: you will return to your homeland and nobody will stop you," he said.
Hamas has carried out nearly 60 suicide bombings against Israelis since a Palestinian uprising began in 2000 but has largely adhered to a ceasefire forged a year ago. It has said talks with Israel would be a waste of time.
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