Jerusalem, Sept 26 (NDTV.COM) Rivals Hamas and Fatah called off top-level talks on forming a Palestinian unity government that might ease crippling international sanctions.

The move is the latest indication of difficulties in bridging their huge philosophical differences.

With the Palestinians stuck, another channel for Mideast progress appeared to open when Israeli media reported that Prime Minister Ehud Olmert had a secret meeting with a senior official from Saudi Arabia.

Both sides predictably denied the reports, as they have no official relations.

Palestinian President Mahmoud Abbas, the head of Fatah, postponed his planned trip to Gaza for talks with Prime Minister Ismail Haniyeh of Hamas, and both sides said no new date has been set.

Since a Hamas government took office last March, a cutoff of Western aid has brought the Palestinian Authority to its knees, leaving most public sector workers without pay for months and shutting down vital projects.

Israel and the West insisted that the Islamic Hamas, must recognize Israel, renounce violence and accept previous peace accords.

Hamas trounced Abbas' Fatah in January parliamentary elections, a reflection of voter dissatisfaction with decades of Fatah inefficiency, corruption and high-handed rule more than an endorsement of the Hamas ideology rejecting the existence of Israel.

Thrust into power for the first time, Hamas has refused to bend its main goal, an Islamic Middle East without a Jewish state.

Over the past decade, dozens of Hamas suicide bombers have killed hundreds of Israelis.