Gaza/Ramallah - The Palestinian Authority on Saturday called on a Likud-led Israeli government to recognise previous peace agreements on the occupied territories, as Benjamin Netanyahu appeared set to become Israeli prime minister.

Netanyahu was asked on Friday to form a coalition government by Israeli President Shimon Peres, despite his Likud party falling one seat behind the Tzipi Livni-led Kadima party in this month's elections.

In his first reaction, Palestinian Authority President Mahmoud Abbas said the Palestinian leadership "will not deal with the new Israeli government if it doesn't show commitments towards peace."

Hamas, which runs the Gaza Strip, meanwhile said the formation of a Likud-led government showed that Israel was "going towards extremism."

A spokesman for Abbas, Nabil Abu Rudeineh, said in a statement to the Palestinian news agency Wafa that the Palestinian Authority "is ready to work together with any government in Israel if it accepts the two-state solution and signed agreements and stops settlement activities."

Abbas, who enjoys the backing of the West, is currently on a tour of Gulf states.

In Gaza, Hamas spokesman Fawzi Brhoum said "assigning Netanyahu to form a government confirms the Zionists attitude is going towards extremism."

"Any claims of this government for peace (with the Palestinians) are illusory," he added.

Peres on Friday picked Netanyahu to form the next Israeli government, ending days of speculation.

Netanyahu has the option of forming a narrow coalition with right- wing and religious parties, or attempting to form a broader one with his centrist rival, Kadima's Livni.

She has hinted, however, that she would prefer Kadima to go into opposition than form a coalition with Netanyahu. However, parliamentary speaker and leading Kadima lawmaker Dalia Itzik has spoken in favour of joining a Likud-led government.

"We want influence. I hope we will be able to form a broad government in which Kadima is a serious partner," she said.

Media reports said Netanyahu invited Livni for talks on Sunday.

Netanyahu has up to six weeks to form a working coalition in the Knesset. One option could be to offer Kadima numerous ministerial posts, or even rotate the office of prime minister.

During the election campaign Netanyahu said he wanted to freeze current peace talks with the Palestinians and build an "economic peace" instead. (dpa)