He was speaking to thousands of Palestinians who had gathered at the grave of Yasser Arafat, two years after the veteran leader died at the age of 75, to remember the man who even in death embodies their struggle for independence.

Abbas pledged to continue Arafat's struggle towards a Palestinian state with its capital in Jerusalem and vowed not to concede a single foot of Palestinian land.

"Peace and security will not be realised under occupation and settlement and the inclusion of noble Jerusalem into Israel," Abbas told the assembled masses who held aloft the late leader's portraits in the Muqataa headquarters, decked with Arafat posters and Palestinian flags.

"Israel, if it wants peace, should apply international decisions and withdraw from Palestian and Arab lands to the 1967 borders."

Leading Palestinian figures, cloaked in black and Arafat's trademark white checkered kefiya (headscarf), laid wreaths at Arafat's grave, which Palestinians want moved to east Jerusalem, the hoped-for capital of their future state.

Arafat was the joint recipient with the late Israeli primer Yitzhak Rabin of the 1994 Nobel peace prize. But he was boycotted by Israel and the United States in his final years as a terrorist and an obstacle to peace.

His passing on November 11, 2004 refuelled hopes for progress on the Middle East peace process, but the daily lives of Palestinians have grown only more desperate since then.

In the run-up to Saturday's anniversary, almost 100 Palestinians were killed in a week of Israeli army operations, mainly in the Gaza Strip, to which Arafat had returned in triumph from exile in 1994.

Impotent against Israel and embroiled in factional unrest today, more than ever Palestinians miss the patriarch who symbolised their dreams.

Even Arafat's most fervent critics miss the man remembered as a survivor who excelled in the art of triumphing in the face of adversity, thanks to a natural political instinct.

Palestinian newspapers plastered Arafat's photos on their front pages, with the Al-Quds daily proclaiming "How much we miss you Abu Ammar", Arafat's nom de guerre.

Abbas, his moderate and uncharismatic successor as Palestinian Authority president, has repeatedly advocated but failed to achieve a return to negotiations with Israel.

He now finds himself locked in a power struggle with Hamas, which won unexpectedly won parliamentary elections in January.

The Islamists' rise to power weakened Abbas and led to a series of events that plunged the already suffering Palestinian territories into a deeper political and financial crisis.

The West, which brands Hamas as a terror group, cut off the aid that once kept Palestinian coffers afloat, and subsequent efforts to end the boycott by forming a Fatah-Hamas unity government have not borne fruit.

Arafat was criticised in later years for his authoritarian rule, but no one has been able to fill his gargantuan shoes. The Palestinian state he promised until his dying day is still a dream, and Gaza and the West Bank are in the throes of anarchy. However, Abbas added to growing political optimism Saturday by saying a unity government with Hamas was likely by month's end. That would hopefully not only lead to an end to the punishing boycott, but also help reinvigorate a stalled peace process.

"I say to our people that we have realised great progress on the road toward forming a national unity government that can break the siege and open the way for a political solution that will end the occupation forever," Abbas said.

"I expect, God willing, that this government will see the light of day before the end of the month."

Abbas and other speakers also touched on suspicions that continue to surround Arafat's death in a Paris hospital. Conspiracy theories that Arafat was poisoned still abound despite doctors finding no trace of toxins.

Abbas said an investigation into Arafat's death was continuing.

"I repeat here my call for all those doctors involved in the matter to fully cooperate with (investigators) so that our people and the whole world can know the truth of what happened to Abu Ammar," he said.