The demand came after a meeting in Cairo between Palestinian President, Mahmoud Abbas and the Egyptian President, Hosni Mubarak.
The high level diplomacy is being held in Cairo to chart a response to the stunning Hamas win in the Palestinian elections last Wednesday.
Egyptian intelligence chief Omar Suleiman urged Hamas to take three key steps before it would be asked to form a new government.
The demand includes a halt to the violence, a commitment to previous agreements signed with Israel and a recognition of Israel.
“If they don’t do it, Abu Mazen (also known as Mahmud Abbas) will not ask them to form government with other parties,” said intelligence chief Omar Suleiman.
The conditions have not been confirmed by Mr Abbas who is expected to meet a delegation of Hamas officials in Egypt before more talks in Gaza on Friday.
International donors have threatened to cut aid to the Palestinian Authority unless Hamas renounces violence and recognises Israel’s right to exist.
Hamas leaders have ruled out recognising the legitimacy of the Jewish state but have signalled they are prepared to negotiation a truce to stop the violence.
“We shall never recognise the right of any power to rob us of our land and deny us our national rights,” said exiled leader Khaled Meshaal who is based in Damascus.
“We shall never recognise the legitimacy of a Zionist state created on our soil,” he said.
Hamas has dismissed threats from Western donor countries to cut Palestinian aid, suggesting it will turn to its Arab neighbours for help.
Hamas official, Dr Mahmoud Al-Zahar has told SBS’s Dateline program, “We are not accepting the condition donation, but believe me, we are going to bypass this problem and to solve it by running a very important investment system, in order to reconstruct our economy. Now we are receiving offers from many Palestinian and Arabic and international organization[s].”
Saudi Arabia and Qatar have pledged to transfer US$33 million (A$43.58 million) to the Palestinian Authority to ease a severe budget crisis, a senior Palestinian government official said.
Once the deal is finalised, the official said the money would be used immediately to pay the salaries of 137,000 employees due in January.
The Palestinians financial woes follows Israel’s decision to suspend the monthly transfer of millions of dollars in tax and customs revenues to the Palestinians.