Hamas has made a major political climbdown by agreeing to sections of a document that recognise Israel's right to exist and a negotiated two-state solution, according to Palestinian leaders.

In a bitter struggle for power, Hamas is bowing to an ultimatum from the Palestinian president, Mahmoud Abbas, to endorse the document drawn up by Palestinian security prisoners in Israeli jails, or face a national referendum on the issue that could see the Islamist group stripped of power if it loses.

But final agreement on the paper, designed to end international sanctions against the Hamas government that have crippled the Palestinian economy, has been slowed by wrangling over a national unity administration and the question of who speaks for the Palestinians.

Yasser Abed Rabbo, a member of the Palestine Liberation Organisation's executive committee and a lead negotiator on the prisoners' document, said Hamas had agreed to sections which call for a negotiated and final agreement with Israel to establish a Palestinian state on the territories occupied in 1967, including East Jerusalem.

"Hamas is prepared to accept those parts of the document because they think it is a way to get rid of a lot of its problems with the international community. That's why it will accept all the document eventually," he said.

Hamas, facing a deep internal split over recognition of the Jewish state, declined to discuss the negotiations in detail.

If it formally approves the entire document, it will represent a significant shift from its founding goal of replacing Israel with an Islamic state and its more recent position of agreeing a long-term ceasefire, over a generation or more, if a Palestinian state is formed on the occupied territories but without formally recognising the Jewish state.

Mr Abed Rabbo said he expected an agreement in the coming days, but that important differences still had to be settled, particularly over the document's call for the formation of a national unity government.

He described that as "the major issue that will determine the fate of two nations for decades" because a unity administration, built around a common policy of negotiations with Israel, would be the only way to combat its plans to unilaterally impose its final borders and annex parts of the occupied territories.

More immediately, this was also the only way to restore foreign aid. But Mr Abed Rabbo added it would be a mistake to see the approval of the prisoners' document as sufficient, in itself, to end international sanctions against the Palestinian Authority. "The document calls for the foundation of a national unity government as the basis of a new programme that will approach the world," he said.

"But the document is part of a package. It should be accompanied by an agreement on policies for a new government. The document won't change conditions and relations on its own."

Mr Abed Rabbo said the July 26 referendum would be called off if there was agreement on the document, but that a ballot could be held later if Hamas blocked the formation of a new government or failed to agree on a negotiations policy.

Abdullah Abdullah, a Fatah MP and chairman of the parliamentary political committee, said other differences remained over the document, including Fatah's insistence that the PLO continues to be recognised as the sole representative of the Palestinian people in negotiations with Israel, and that all existing agreements between the PLO and Israel be recognised.

Israel has dismissed the prisoners' document as changing little because, among other things, it advocates continued resistance. But a complete renunciation of violence is unlikely to come while Israeli attacks continue to claim the lives of innocent Palestinians.

Yesterday, a women was killed and six children injured in an Israeli missile attack in Gaza. On Tuesday, an Israeli air force rocket killed three children, two boys aged five and 16, and a seven-year-old girl. In both cases, Israel said it was targeting militants who escaped injury.

Israel has killed 13 civilians, most of them children, in four air strikes this month. It is also probably responsible for the killing of a family of seven during a shell barrage against a Gaza beach two weeks ago.