This week could turn out to be a vital one for the Palestinian Authority as the ruling Hamas movement ponders whether to sacrifice some of its ideology in exchange for safeguarding political gains it made in last January’s elections.

Depending on the outcome of its deliberations, the PA could within weeks have a new national unity government with a platform of negotiating with Israel, or face a potentially divisive national referendum and worsening relations between Hamas and Fatah.

Representatives of the two movements met in Gaza yesterday in the latest talks aimed at reaching agreement on a set of proposals implicitly recognising Israel – the so-called prisoners’ document – that Mahmoud Abbas, the PA’s Fatah president, plans to put to a referendum on July 26.

Although Hamas failed to meet Mr Abbas’s mid-June deadline to endorse the document, Fatah officials said there was still time for the Islamists to avert a referendum by belatedly accepting its 18 points.

That, however, would require Hamas accepting proposals that embrace a two-state solution to the conflict with Israel, which it so far refuses to recognise.

The Fatah officials said agreement had been reached on a number of elements of the proposals, which were drawn up by Palestinian detainees in an Israeli jail.

But Hamas was still balking at clauses that accept the Fatah-controlled Palestine Liberation Organisation as sole representative of the Palestinian people, adhere to Arab and UN resolutions on the conflict, and endorse the concept of a two-state solution.

“We are prepared to consider changes in the wording but we see it [the document] as a package,” Abdullah Abdullah, Fatah chairman of the PA parliament’s political committee, told the FT. “If there is an agreement, there is no need to hold a referendum but that must be dealt with by the end of this week.”

Mr Abbas regards his initiative as the only way of easing an international economic boycott of the PA and of obliging Israel to embark on substantive negotiations before taking unilateral action to establish a de facto border in the West Bank.

Hamas views the referendum as part of a foreign-inspired plot to undermine the political victory it scored by defeating Fatah at the polls in January.

However, by endorsing the prisoners’ document, Hamas would safeguard its hold over parliament – Fatah officials have warned that Mr Abbas might call fresh elections if Hamas lost the referendum – while potentially reversing an economic boycott that threatens to dilute its public support in the longer term.

The international Quartet – the US, European Union, United Nations and Russia – has approved a €100m (£68m, $126m) emergency package of EU aid that includes allowances to poor Palestinians. But Palestinian officials said this was no substitute for a restoration of foreign budgetary support.

As well as sacrificing its ideology, Hamas would also be obliged to abandon its monopoly of government. Part of the package being discussed in Gaza would involve Palestinian factions accepting a unity government, possibly run by non-political technocrats.

Even if Hamas accepted the prisoners’ document, there is no guarantee that this would meet Quartet demands for it to recognise Israel, abandon violence and accept previous agreements with Israel before direct aid to the government could resume.

Israel has dismissed the prisoners’ proposals and Ehud Olmert, Israeli prime minister, has described the proposed referendum on it as meaningless.

Mr Abbas nevertheless believes it would reinforce his efforts to enlist Arab and Quartet support in pressing Mr Olmert to negotiate before he embarks on unilateral measures. “This may not lead to breaking the siege against us,” said Nabil Amr, a former Fatah minister and adviser to Mr Abbas. “But it would lead others to deal with us as a moderate authority.”