By Nidal al-Mughrabi

GAZA, March 17 (Reuters) - Palestinians are set to swear in a coalition government between Hamas and Fatah rivals on Saturday that they hope will halt factional fighting and help lift a crippling year-old Western embargo.

Ratification of the "unity" cabinet looks certain when parliament meets at 11 a.m. (0900 GMT) for a keynote address by moderate President Mahmoud Abbas of Fatah, who signed a power-sharing deal with governing Hamas Islamists last month.

Israel has ruled out talks with the Palestinian government given Hamas's refusal to accept demands, set by a Quartet of foreign peace mediators, that it renounce violence, recognise the Jewish state, and endorse past rapprochement efforts.

But with international impatience mounting over the diplomatic impasse and deepening Palestinian poverty and lawlessness, there have been signs of Western flexibility on talking to non-Hamas members of the new cabinet in the future.

A U.S. official said on Friday that Washington would leave the door open to unofficial contacts with Palestinian Finance Minister-designate Salam Fayyad, a political independent.

France has invited new Palestinian Foreign Minister Ziad Abu Amr to visit Paris, and European diplomats said Britain planned to allow diplomatic contacts with ministers not from Hamas.

Hamas has been troubled by the signs that Western powers will try to pursue a partial diplomacy policy with Palestinians. "Hamas rejects the selectivity in dealing the ministers of the government of national unity," said Ismail Rudwan, a Hamas spokesman.

The coalition's fate may hang on whether it can erode the foreign boycott of the aid-dependent Palestinian Authority, which has been unable to pay its employees in full for a year.

The Quartet -- the United States, European Union, Russia and the United Nations -- suspended direct aid to the government after Hamas beat Fatah in elections and took power last March.

Outgoing Palestinian Prime Minister Ismail Haniyeh of Hamas will present his new cabinet line-up and read a policy speech before a confidence vote. Ministers are then to be sworn in at Abbas's office.

The new government is likely to pledge "respect" for past Palestinian-Israeli agreements, in line with a Saudi-brokered agreement reached by Hamas and Fatah in Mecca on Feb. 8.

The United States has said any Palestinian government must meet all the Quartet's conditions, but has reserved judgment on the unity coalition. Like France, Russia has given warmer signs.

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