Israeli Defense Minister Shaul Mofaz announced today that Israel may allow Palestinians in East Jerusalem to vote in the upcoming parliamentary elections, but that "terror organizations and representatives of them will not be able to participate in elections in Jerusalem." Of course, Hamas qualifies as a terror organization, and Israel is naturally hesitant to allow such a group to participate in electoral politics with the possibility of assuming real power.
However, this seems to me to be a mistake. Despite Hamas' choice of tactics, they have behaved themselves over the years as a rational political actor. During the second intifada, there were numerous times when one more suicide bomb would have completely derailed the peace process, and yet Hamas always restrained itself. Hamas has, more or less, observed the recent truce, despite the possibility of totally ending negotiations between Israel and Fatah.
What are Hamas' motivations? While they claim to be pledged to the destruction of Israel, they cannot believe that this can be accomplished (at least not the leadership). So, short of that, Hamas most likely wants to rule whatever land they can. And the best way to do that is through the burgeoning political process, with a bit of violence thrown in here and there to keep the pressure on both Israel and Fatah.
What would a political role for Hamas mean? Forcing Hamas to campaign for votes could help moderate the party's platform. While Hamas is an Islamic group (as opposed to the secular nationalism of Fatah), it does not promote Islam with the fanatacism of, for example, the Taliban. As the New York Times noted in an article from last November, Hamas currently governs the West Bank town of Qalqilya (Lexis-Nexis, RR), and the responsibilty of governance is heavy. While Hamas has been reasonable successful at mundane issues (e.g., balancing the budget, modernizing the infrastructure, fighting corruption), their religious practices have created opposition from Palestinians who do not want to see their land become Afghanistan under the Taliban. So long as Hamas isn't the only viable party in Palestinian lands and has to compete with Fatah and other groups, it will have to restrain itself to win votes and govern effectively. Besides, whether or not the Palestinians want their lives to be governed by sharia isn't really a concern of Israel or the US, is it? Furthermore, it's not like Fatah and the Palestinian Authority are much better. Abbas has shown little more spine than Arafat ever does, refusing to root out corruption or challenge the militants. So, ignore the rhetoric and let Hamas compete for office.