KEY POINTS:
JERUSALEM - Hamas has softened its refusal to recognise Israel.
Khaled Meshaal, the Islamic movement's political leader in exile, said in Damascus Israel was a "reality" and "there will remain a state called Israel, this is a matter of fact".
Israeli and European diplomats reacted with caution, though they acknowledged that the interview contained things Hamas had not said before.
Meshaal is regarded as the man who dictates policy for the Palestinian Government from his base in the Syrian capital.
Mark Regev, Israel's Foreign Ministry spokesman, said: "To state that Israel is in existence is to state the obvious. The problem up to now has been that Hamas says again and again Israel has to be wiped off the map."
Asked about Meshaal's statement that there would remain a state called Israel, he said: "That has to be looked at more carefully. We have no indication so far of any policy change."
In his comments, Meshaal hedged his acceptance of Israel and said Hamas would refuse to consider granting formal recognition until its demand for a Palestinian state was met.
"The problem is not that there is an entity called Israel. The problem is that the Palestinian state is non-existent."
The Palestinians had to have a state that included the West Bank, Gaza Strip and East Jerusalem, with a right for Palestinian refugees to return to their homes inside what became Israel in 1948.
"As a Palestinian today," Meshaal said, "I speak of a Palestinian and Arab demand for a state on 1967 borders. It is true that in reality there will be an entity or state called Israel on the rest of Palestinian land. This is a reality, but I won't deal with it in terms of recognising or admitting it."
One European diplomat said in Jerusalem Meshaal had not gone far enough for the international community to lift economic sanctions. It would have been better if he had endorsed the 2002 Arab peace plan.
The diplomat suspected the softer line might have been a ploy to revive the chances for a Palestinian unity government and restore Hamas' popular appeal.
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