Blair sees Middle East deal if Israel acts

TRIESTE, Italy (Reuters) - A deal on a two-state solution in Palestine could be within reach if Israel compromises on issues such as halting settlement expansion, said envoy to the region and former British prime minister Tony Blair.

Blair -- regional mediator for the Middle East peace Quartet that groups the United Nations, the United States, Russia and the European Union -- said hardline Israeli President Benjamin Netanyahu could be in a strong domestic position to deliver concessions, if he was willing to do so.

A statement from the Quartet, which met on the sidelines of a G8 foreign ministers' meeting in northern Italy, called for Israel to halt all settlement activities and for Palestinians to combat violent extremism.

"There is a virtual consensus across the international community not just as to what needs to happen, but how...which was not the case a couple of years ago," Blair told Reuters.

"If Israel were to join that, we could get an agreement and an agreement in my view that protects completely the state of Israel."

Direct talks between Israel and the Palestinians could resume soon, Blair said, but the process was at a delicate stage as foreign powers stepped up calls on Jerusalem to ensure a Palestinian state would not be undermined by settlements.

In a statement Friday, G8 ministers urged Israel to halt the expansion of settlements, echoing a recent call from U.S. President Barack Obama after a meeting with Israeli Prime Minister Benjamin Netanyahu in Washington earlier this month.

Netanyahu, who heads a right-leaning coalition that could be fractured if he agreed to a settlement halt, has reiterated his intention to continue building within existing settlements in the West Bank to accommodate the "natural growth" of families.

"The advent of the Obama administration has given a new sense of energy and commitment and to a certain extent hope... However, the challenges are still there," Blair said.

Before political negotiations on a two-state deal could begin, progress was needed on the ground such as the reopening of the Gaza Strip and the release of an Israeli soldier captured there three years ago by militant group Hamas, Gilad Shalit.

Gaza has been under blockade since Hamas seized power there two years ago in fighting with Fatah-led forces.

Hamas, shunned by the West for refusing to recognize Israel or to renounce violence, had won an election a year earlier.

A statement by the Quartet Friday called for a halt to all violence and arms trafficking in Gaza and the reopening of all crossing points.

Blair said Netanyahu's election this year could prove a blessing, as his hardline government could have the domestic support to make concessions.

"I hope and believe Prime Minister Netanyahu is sincere about wanting a Palestine state and wanting to help create one. If he is, he could be in a strong position to deliver it."