GAZA (Reuters) -- Mediation by Qatar's foreign minister failed to resolve a row between feuding Palestinian leaders, bringing closer the possibility of fresh elections, a senior aide to President Mahmoud Abbas said on Tuesday.

A stalemate between Abbas and the Hamas-led government over forming a unity government has triggered the worst internal fighting in a decade and stirred fears of civil war.

The Hamas Islamist movement denied talks were at a dead end, but said an initiative presented by Qatari Foreign Minister Sheikh Hamad bin Jassim bin Jabr al-Thani in Gaza was unacceptable because it included recognition of Israel.

Senior Abbas aide Yasser Abed Rabbo said time was running out for Hamas, which has struggled to rule since the West imposed sanctions on the government for refusing to recognize Israel, renounce violence and accept interim peace deals.

"The differences on the core issues have remained," Abed Rabbo said after overnight talks in Gaza involving Sheikh Hamad. "This initiative is the last political effort that is being exerted and the opportunity must be seized because the alternative is to hold early elections."

Hamas says it will never recognize Israel. The group says it will only abide by peace agreements with the Jewish state that are in the "interests of the Palestinian people." Government spokesman Ghazi Hamad accused Abed Rabbo of trying to "poison the atmosphere."

"There is no room to talk about early elections or an emergency government," Hamad told a news conference.

Ahmed Youssef, a senior aide to Prime Minister Ismail Haniyeh of Hamas, said the movement rejected two points in proposals presented by Sheikh Hamad. This included agreeing to a two-state solution to resolve the conflict with Israel.

"As Islamists we cannot accept this," Youssef told Reuters.

Palestinians hope formation of a unity government will lift the crippling Western embargo, in place since Hamas took office after stunning Abbas's Fatah movement to win January elections. Fatah seeks a negotiated peace with Israel.