By Alaa Shahine CAIRO, Nov 14 (Reuters) - Arab states are banking on Fatah and Hamas agreeing on a Palestinian unity cabinet so that their unanimous decision to bypass a Western financial ban on the Palestinians can have some chance of success. But their bluff would be called if talks between the two rival groups run into new problems. Failure to implement Sunday's resolution, which also called for a new Middle East peace conference, would deal another blow to the credibility of the Arab League, analysts say. The United States, Israel's chief ally, and its partners in the Quartet of Middle East mediators have imposed the eight-month boycott to press the governing Islamist group Hamas, which won general elections in January, to renounce violence and recognise Israel. But Hamas said on Tuesday the planned unity government would not recognise the Jewish state or accept a two-state solution to the Middle East's longest-running conflict. Analysts say any collapse in talks to form a new cabinet more acceptable to Israel would force Arab states to challenge Washington if they were to break the boycott unilaterally, a stance they are unlikely to take. "On the surface, this looks like an encouraging resolution ... but Arab states played it smartly," said Egyptian political analyst Hassan Nafaa. "They expect a national unity government soon, which means the boycott would be lifted ... but if forming the government gets complicated Arab states would be forced to defy the United States and I don't think this would happen," he told Reuters. PAY OR DARE Many Arabs say the 22-member League is too weak to challenge Israel or the United States and accuse governments like Egypt, Jordan and the oil-rich Gulf Arab states of serving U.S. interests in return for Washington's political and military backing. Arab foreign ministers meeting in an emergency session in Cairo gave no details on how they would bypass the ban and help banks avoid possible U.S. sanctions. A senior Arab diplomat told Reuters on Monday the ministers have yet to find a way to do so because of many difficulties, including Israel's control of banking licensing in the Palestinian territories. Mouin Rabbani, senior analyst for the International Crisis Group think tank, said the Arab League's decision would be empty if Palestinians failed to form a national unity government. "If you take the (Arab) statement at face value it's hot air ... The only political significance is that Arab states are anticipating the formation of a new Palestinian government which will be under less Western restrictions," Rabbani said. The United States and the European Union regard Hamas as a terrorist organisation and have cut off direct aid to its administration. As a result, the Palestinian government has largely been unable to pay its 165,000 workers since April. Even the new international peace conference the Arab ministers have called for was unlikely to attract enough attention from key Western powers, analysts say. "They (Arabs) can call for as many conferences as they want. It is not going to happen," Rabbani said. Previous Arab calls for a solution bypassing the long-stalled, U.S.-sponsored "road map" to the Middle East have gone unheeded. Israel says a peace conference comes at the second stage of the road map, which Hamas rejects.
