Mideast Peace Progress

"I am announcing to the heads of the Arab states on this occasion that if the Saudi king initiates a meeting of moderate Arab states and invites me and the head of the Palestinian Authority in order to present us the Saudi ideas, we will come to hear them and we will be glad to voice ours," Olmert said.

"I invite all the heads of the Arab states, including of course the Saudi king whom I consider a very important leader, to hold talks with us," he told a joint press conference with German Chancellor Angela Merkel in Jerusalem.

"A push to the diplomatic process"

"I think it is time to make a momentous effort in order to give a push to the diplomatic process," he said. "I am optimistic."

When asked what he would tell King Abdullah if such a meeting were convened, Olmert said: "There are things you can say in a personal meeting that cannot be announced publicly before they have been ripened in a correct and orderly process to bear fruit."

"I do not intend to dictate to them what they should say and I am sure they understand we will have things to say."

"It is not essential that the things they will say and the things we will say will be identical at this stage, but the actual holding of such a meeting, where they could present all their ideas and we could present our ideas is certainly something worth an effort."

Israel critical of new Palestinian government

Olmert implicitly criticized Palestinian president Mahmud Abbas' decision to strike a national unity deal with Islamist movement Hamas under which his secular Fatah faction shares power with a group regarded as a terrorist organization by the West.

The unity government's formation "cannot stop the unavoidable historical process where the Palestinians will have to make a decision whether they want to take the path of fundamentalist extremism that leads to blood and war, or the path of peace and compromise," he said.

Israel has refused to have any dealings with the new government, although officials of the European Union, the United Nations and United States have been ready to meet non-Hamas ministers.

At a summit in Riyadh last week, Arab leaders revived a five-year-old peace plan that offers Israel normal relations if it withdraws from all land seized in the 1967 Middle East war, and allows for the creation of a Palestinian state and the return of Palestinian refugees. Israel rejected the plan when it was first adopted in 2002, but has since said that it could serve as a basis for talks provided there are changes on the refugee issue, something Arab heads of state rejected at the Riyadh summit.

Palestinian chief negotiator Saeb Erekat said he hoped Olmert's call for talks presaged Israeli acceptance of the Saudi blueprint.

"We hope Ehud Olmert will accept the Arab initiative" which "would open new horizons," he told AFP.

During a visit to the region by US Secretary of State Condoleezza Rice last week, US officials traveling with her confirmed that efforts were underway to convene a meeting between Israel, pro-Western Arab states and the key players in the Middle East peace process.

But one US official acknowledged that it might be "premature" to expect Saudi Arabia and fellow US ally the United Arab Emirates to abandon their longstanding public policy of no contacts with the Jewish state.

Merkel presses both sides to sit at table

Olmert's statements came after three weekend meetings with Merkel, who also met Abbas in Ramallah.

The German chancellor urged Israeli and Palestinian leaders to seize the opportunity to revive their peace talks, which have been stalled for six years.

Merkel, holder of the European Union's rotating presidency,is trying to build on momentum for renewed peace talks between Abbas and Israeli Prime Minister Ehud Olmert after Arab states revived their peace offer to the Jewish state.

"We are going through a period where we feel that things are moving," Merkel said in a speech at Jerusalem's Hebrew University, where she received an honorary doctorate.

"There is a window of opportunity... There is a real chance of reaching a breakthrough and we must grasp it," she said.

Merkel called on Abbas to help secure the release of Israeli soldier Gilad Shalit, captured by Gaza militants in a raid into Israel in June.

"I am not going to talk about optimism in order that no one would consider that as a promise," Abbas said. "He will inevitably be released." Merkel met Olmert and Foreign Minister Tzipi Livni before touring the Yad Vashem Holocaust museum.

During her Middle East tour, Merkel will also visit Lebanon, meeting Prime Minister Fouad Siniora and visting a German

frigate which is part of the UN peacekeeping mission there.