Hamas declared its rejection before the meeting even got underway, while its smaller rival Islamic Jihad insisted on Israeli concessions.
“Hamas says it is not possible to agree or announce a truce during this dialogue. A cooling down period of several months is possible but not a long-term truce,” said spokesman Mohammed Nazal.
Opening the Cairo meeting, Palestinian leader Mahmud Abbas called on Israel to fulfil its commitments and warned against any delays.
“It is impossible for us to accept to implement our commitments in a unilateral fashion,” he said.
“The situation on the ground goes on unchanged, notably with (Israel’s) settlement activity, the building of the racist, separation wall (along the West Bank), the checkpoints and closures,” he charged.
But Israeli Prime Minister Ariel Sharon has said all radical Palestinian groups must be dismantled.
“The Palestinians must first and foremost conduct a vigorous fight against terror, break up the terror organisations and stop incitement,” he said from Israel.
The Palestinian factions have largely respected an unofficial cooling down period since Mr Abbas was elected leader in January following the death of Yasser Arafat.
Hamas and Islamic Jihad insist on the release of more than 7,000 Palestinian prisoners held by Israel.
Last month, Israel freed 500 prisoners as part of a series of goodwill gestures following a landmark peace summit in Egypt.
Meanwhile, Palestinians prepared to take control of the West Bank town of Jericho from Israel in the first of five security transfers.
Israel agreed Monday to hand over security responsibility for the town to the Palestinian Authority.
“We are totally ready to take control in the governorate of Jericho. We are ready to assume our responsibilities fully at both a security and civilian level,” Jericho Governor Sami Musallam said.
Handing over security in Ramallah, Bethlehem, Qalqilya, Tulkarem and Jericho was a key issue agreed at the Egypt summit.