Mahmoud al-Zahar said in Gaza that "the right of return is closer than ever" adding "the Zionist legend of invincibility has been destroyed," Ynetnews.com reported.

"Now more than ever I tell you -- (we) will never recognize Israel ... We will form the Palestinian state on all of Palestine's territories and The Sun of liberty will burn the Zionists. To them I say -- you will lose," he said.

Israeli officials told Egyptian mediator Omar Suleiman any peace deal with Hamas must be separate from a prisoner exchange that included Gilad Shalit, the Israeli soldier abducted in 2006.

"Hamas will not offer Gilad Shalit for nothing," Zahar said.