CAIRO, Sept 19 (Reuters) - Egyptian intelligence chief Omar Suleiman met Hamas leader Khaled Meshaal in Saudi Arabia this month in an attempt to push for reconciliation between Palestinian factions, the pan-Arab daily al-Hayat reported.

Forging Palestinian unity is seen as crucial to any prospect for a Palestinian state based on peace with Israel. But the Islamist group Hamas has so far rejected a pact proposed by Egypt to end its row with President Mahmoud Abbas's Fatah group.

Direct talks between Palestinians and Israelis were launched this month in Washington, aiming for a peace deal in a year but are already stuck over Israeli settlement building on occupied land. Hamas, which controls Gaza, opposes talks with Israel.

The deadlock over the reconciliation dossier does not benefit Hamas and will reflect negatively on it as the division (between factions) persists, a senior Egyptian source was quoted in the London-based newspaper on Sunday as saying.

Abbas's Fatah, which holds sway in self-rule areas of the West Bank, signed the Egyptian pact proposed in October 2009. Hamas did not, demanding guarantees it would be recognised and no embargo imposed on it if it won a future election.

Hamas has refused to recognise agreements Fatah signed with Israel and has been locked in a power struggle with the formerly dominant Palestinian faction since winning an election four years ago. Israel tightened a blockade on Gaza after that vote.

Suleiman held the talks with Meshaal in Mecca on the sidelines of an official visit to Saudi Arabia, where he met King Abdullah to brief him on the first round of peace talks.

The source quoted by al-Hayat said Gaza could become a rebellious region and said Egypt was ready to host fresh reconciliation talks when Hamas was ready to sign the pact.

Arab League countries called on the Palestinians last week to settle their differences to strengthen their hand in peace talks.