Olmert and Abbas hold first talks since Gaza loss

SHARM EL-SHEIKH, Egypt, June 25 (Reuters) Israeli and Palestinian leaders held talks today for the first time since Hamas defeated Fatah forces in the Gaza Strip, leading to a political split between the two Palestinian territories.

Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas shook hands and smiled before the talks, in the Egyptian Red Sea resort of Sharm el-Sheikh, which Cairo says will be followed by a four-way meeting including Egypt and Jordan.

Arab leaders were hoping to hear what Israel planned to do to make life easier for Palestinians living under Fatah control in the Israeli-occupied West Bank.

In return, Arabs will press Olmert to relaunch talks with Abbas and his Fatah movement on a long-term peace agreement, leaving aside the Hamas Islamists now in control of Gaza.

''The Palestinian people should feel hope and peace, and this requires putting forth the subject of final status and reaching an agreement on its framework,'' Egyptian presidential spokesman Suleiman Awad told journalists.

''They (Israel) can reject it. And we can insist on it.'' Abbas and Olmert held bilateral talks in the late afternoon, and Egyptian President Hosni Mubarak held separate talks with both leaders and King Abdullah of Jordan.

In a speech in Jerusalem, Olmert said he hoped his meeting with Abbas would spread a spirit of peace across the region, but he played down expectations of a breakthrough.

The release of an audio tape with the voice of captured Israeli soldier Gilad Shalit overshadowed summit preparations at the last minute. Gunmen from Gaza abducted Shalit exactly a year ago and negotiations to free him have failed.

RELUCTANT ON ROADBLOCKS Olmert, speaking in broad-brush terms, said it was important for Arab countries to see all four leaders ''expressing a genuine desire to build up a process'' focusing on peacemaking.

''This is the thrust of this evening's meetings and I hope that it will help project that spirit across the entire Middle East in order to move forward,'' he said.

''Where we can be flexible, where we can show a degree of generosity, where we can establish an environment of goodwill, there, I think, we should do it. And this is the true basis upon which we will move forward in the near future.'' However, Arab governments have made it clear they have long-term demands which Israel seems reluctant to address.

Senior Abbas aide Saeb Erekat said: ''The important thing for President Abbas is to revive the peace process and the political negotiations in order to end the Israeli occupation and establish a Palestinian state.'' Israeli officials have said Israel is reluctant to remove roadblocks and other West Bank restrictions to boost Abbas's new emergency government, shorn of Hamas Islamists, until he does more to curb militants.

Israel has, however, agreed to resume transfers of Palestinian tax revenues to Abbas's government. An official said about 0 million, short of the 0 million sought by the Palestinian president, would be given in stages, once a mechanism was in place to ensure the money would not reach Hamas.

Egypt says Israel should pave the way for peace talks by meeting long-standing Palestinian demands on Jewish settlements and the barrier it is building through the West Bank.

Jordanian government spokesman Nasser Joudeh welcomed the release of Palestinian money but wanted a timeline for final status talks.

Olmert said yesterday he would present security demands to Abbas.

Israel's goal is to isolate the Gaza Strip economically, diplomatically and militarily, while allowing funds to flow to Abbas's new administration in the West Bank.

REUTERS SR RN2248