Olmert says understandings reached in peace talks

JERUSALEM (Reuters) - Israeli Prime Minister Ehud Olmert said on Tuesday that he and Palestinian President Mahmoud Abbas had reached "understandings and points of agreement" on some key issues in U.S.-backed peace talks.

Palestinian officials reacted with some skepticism about the extent of progress. But on the eve of a visit from U.S. President George W. Bush that comes amid a police investigation into Olmert's finances, the prime minister is keen to emphasize the positive in efforts to make peace with the Palestinians.

"Our talks with the Palestinian Authority are serious and significant," Olmert said in a speech to foreign dignitaries and business leaders attending a conference being held as part of celebrations of the 60th anniversary of Israel's statehood.

"There has been significant progress, and understandings and points of agreement have been reached in important matters, but not on all the issues," Olmert added.

He did not elaborate on the points of agreement but said: "The biggest and most important challenge before the state of Israel, which will determine its future, is the challenge of determining permanent borders."

Bush, who begins a three-day visit to Israel on Wednesday, helped relaunch negotiations in November and has said he hopes they can end 60 years of Israeli-Palestinian conflict by producing a deal on creating a Palestinian state before he leaves office in January. Many think that deadline unrealistic.

Palestinian negotiator Saeb Erekat, responding to Olmert's remarks, said: "Our negotiations have been serious and in depth, but gaps still exist in all issues. We hope to bridge the gaps."

Another senior Palestinian official, speaking on condition of anonymity, told Reuters: "I don't know what kind of progress he's talking about. We still have a long way to go."

OBLIGATIONS

Israeli officials said last week that progress was being made on defining the borders of a future Palestinian state but not on the thornier issues of Jerusalem or Palestinian refugees.

"I do believe we can get a state defined by the end of my presidency," Bush told Israel's Channel 10 television.

"A state won't exist until certain obligations are met by everybody," he said. Defining what that state would look like was "very important", he added.

During a visit in January, Bush said he believed Israel would sign a peace treaty with the Palestinians in 2008.

The negotiations have been marred by disputes over Israel's expansion of Jewish settlement in the West Bank and its campaign against militants in the Hamas-controlled Gaza Strip. Israel says it targets militants who fire rockets from the Gaza Strip.

Olmert admitted last week he took cash for election campaigns from an American businessman at the centre of the police investigation, but he has denied any wrongdoing. Olmert said he would resign if indicted.

Palestinians have voiced concern that peace negotiations would be disrupted if Olmert were forced to quit. Washington is also unlikely to welcome a moved that could derail the talks.

(Editing by Alison Williams)