(Adds Olmert comments, paragraph 10 By Jeffrey Heller JERUSALEM, Feb 11 (Reuters) - Prime Minister Ehud Olmert reserved judgment on Sunday on a Palestinian unity deal and a senior Israeli official said a U.S.-brokered summit with Palestinian President Mahmoud Abbas would be held as planned. "Israel neither rejects nor accepts the agreements," Olmert said about a power-sharing pact signed by Hamas and Fatah, an accord that failed to meet a core demand by the United States and other Middle East peace mediators to recognise Israel. "At this stage, we, like the international community are learning what was exactly accomplished and what was said," he said in broadcast remarks at the weekly cabinet meeting. A senior Israeli official said Olmert's Feb. 19 summit with Fatah's Abbas and U.S. Secretary of State Condoleezza Rice would go ahead as scheduled. However, in a decision likely to intensify tension, the cabinet decided to press ahead with excavations outside Jerusalem's most sensitive shrine, known to Muslims as al-Haram al-Sharif and to Jews as Temple Mount. The official said the government rejected Arab assertions that the work, which has led to violent Palestinian protests, could harm al-Aqsa mosque inside the religious compound. Fatah and Islamist Hamas agreed in Mecca on Thursday to end factional warfare that has killed scores of Palestinians and to form a unity government, hoping the move would persuade Western powers to restore direct aid to the Palestinian Authority. Olmert reiterated that Israel demanded that any new Palestinian government accept the three conditions set by a "Quartet" of Middle East peace mediators for ending the crippling economic sanctions imposed after Hamas came to power. The group, comprising the United States, the European Union, Russia and the United Nations, wants Hamas, which defeated Fatah in an election last year, to recognise Israel, renounce violence and accept existing interim peace accords. "At the end of the meeting in Mecca, as far as we are concerned, there was no Palestinian announcement that included an agreement on the three principles," an Israeli official quoted Olmert as telling his cabinet. LEGITIMACY In Gaza, senior Hamas legislator Mushir al-Masri said a unity government would enjoy "full Palestinian, Arab and Islamic legitimacy". As a result, he said, "the entire international community, the Zionist enemy and the U.S. administration" would have no choice but to deal with a new reality. The Mecca agreement made no explicit commitment to recognise Israel. A letter from Abbas reappointing Hamas's Ismail Haniyeh as prime minister contained a hazy call to the movement to "abide by the interests of the Palestinian people" and "respect" past agreements and international law. A political adviser to Haniyeh said on Saturday the new government, expected to be unveiled in the coming days, would not recognise the Jewish state. The Quartet repeated its demands of Hamas on Friday but withheld judgment on whether the unity deal had met those conditions. Olmert said at the cabinet meeting he had spoken by telephone to Russian President Vladimir Putin and received assurances that Moscow was sticking to the Quartet's line. In a statement on Friday, the Russian Foreign Ministry welcomed the unity deal and appealed for the lifting of a freeze on direct aid to the Palestinian government. (Additional reporting by Corinne Heller and Jonathan Saul in Jerusalem and Nidal al-Mughrabi in Gaza)
