High-level talks at the Vatican this week have brought considerable progress aimed at ending an impasse over the Holy See's tax obligations in Israel, an Israeli diplomat said Wednesday.

Talks, which included the Vatican's secretary of state at one point and the Israeli foreign ministry's director general, were held Monday "in a very collaborative, constructive atmosphere," said Oded Ben Hur, Israel's ambassador to the Vatican.

In a telephone interview, the ambassador expressed optimism about the possibility of a compromise.

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Israeli-Vatican relations have improved greatly over the years, but the two sides have been at an impasse over a 1993 agreement concerning the tax obligation for Roman Catholic holdings and methods to resolve property disputes.

The Vatican is seeking ways to lessen its tax burden as one of the significant land owners in the Holy Land, and wants access to Israeli courts to handle quarrels over ownership.

Israel has resisted giving special tax exemptions to the Vatican and has offered to create a special panel to oversee property cases involving the Vatican.The ambassador said Israel opposes such special status as extraterritoriality.

"Nobody according to Israeli law can be outside of Israeli law," he said.

There is also concern that special tax arrangements for the Vatican could open the door to demands for similar loopholes by other groups.

"There will come other communities asking for the same situation, Jewish
communities, Muslims, Orthodox," the ambassador said.

The next Vatican-Israeli meeting on the issue will be in mid-December, and discussions have begun about the possibility for another, higher-level meeting in January, the ambassador said.

A Vatican spokesman was not immediately available for comment.

A Vatican-affliated news agency, Asia News, reported from Israel on Tuesday that the word of progress at Monday's meetings was "being received with relief, and with cautious optimism, in Church circles."