The Saudi peace initiative, which calls for a two-state solution along the 1967 borders, must be used as a basis for negotiations between Israel and the Palestinians, Defense Minister Amir Peretz said on Sunday.

Israel has thus far avoided official consideration - at least publicly - of the 2002 initiative which calls on Israel to withdraw to the 1967 borders in return for a comprehensive peace agreement with the Palestinians and other Arab states.

The proposal also calls for an "agreed and just solution" to the Palestinian refugee issue, in accordance with UN Resolution 194. Resolution 194 says, among other things, that "refugees wishing to return to their homes and live at peace with their neighbors should be permitted to do so at the earliest practicable date."

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Speaking to delegates from the Israel Business Conference, Peretz said Israel must present a "real political horizon" to Palestinian leaders if it intends to enter successful negotiations. Israel "must deal with the Saudi initiative as a basis for negotiations," Peretz added.

Peretz made a similar comment in October in an address to an academic conference at Tel Aviv University, when he said "We could see the Saudi initiative as the basis for negotiation," adding, "this does not mean that we are adopting the Saudi initiative, but it can serve as a basis."

Former Shin Bet chief, MK Ami Ayalon, made a similar statement in support of the initiative on Sunday in an address to a closed session of the Saban Forum in Washington, which he attended alongside Minister Avigdor Lieberman

"The war in Lebanon created an opportunity that obligates Israel to motivate a new political process on the basis of the road map and the Saudi initiative, which recognizes Israel's right to exist," Ayalon said.

Labor MK Ophir Pines-Paz told U.S. Senator Joe Lieberman in Washington that Israel must consider the initiative under certain conditions, especially given the fact that the Hamas-led Palestinian government is refusing to accept the international conditions for the resumption of negotiations, leading to a dead end in the relations with the Palestinians.

Prime Minister Ehud Olmert alluded to a change in Israel's policy two weeks ago in an address at Kibbutz Sde Boker. "The voices emanating from those [Arab] states regarding the need for recognition and normalization of relations with the State of Israel - including, for example, some parts in the Saudi peace initiative - are positive," he said, adding, "I intend to invest efforts in order to advance the connection with those states and strengthen their support of direct bilateral negotiations between us and the Palestinians."