Prime Minister Ehud Olmert wants to start a dialogue with Saudi Arabia and other moderate Arab countries after the Riyadh summit again ratified the Saudi peace initiative.

In an interview appearing in the Haaretz supplement Week's End, Olmert said he would be happy to take part in a regional conference that would support direct negotiations between Israel and the Palestinians.

"A bloc of states is emerging that understands that they may have been wrong to think that Israel is the world's greatest problem. That is a revolutionary change in outlook," Olmert said.

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"There are interesting ideas there, and we are ready to hold discussions and hear from the Saudis about their approach and to tell them about ours," he added.

"We aren't going overboard in this matter, but we are also not discounting it. We will act cautiously and wisely out of a willingness to create a dynamic that will improve and strengthen the process."

"The Riyadh summit is certainly a serious matter. We do not delude ourselves - they want us to go back to the 1967 borders and they also want the right of return. We were not surprised; we understood it would be this way. The content is important, but it is also important to relate to the atmosphere, positioning and direction.

"Saudi Arabia is the country that in the end will determine the ability of the Arabs to reach a compromise with Israel," Olmert said.

Israel's official response, released in a statement by the Foreign Ministry in coordination with the Prime Minister's Bureau, was lukewarm. It ignored the content of the Riyadh resolution and focused on the call by the moderate Arab nations to enter a dialogue with Israel.

"Israel believes in peace, and seeks to establish peaceful and neighborly relations both with the Palestinian people and with all the states of the region," the Foreign Ministry statement said. "Israel is sincerely interested in pursuing a dialogue with those Arab states that desire peace with Israel, this in order to promote a process of normalization and cooperation. Israel hopes that the Riyadh Summit will contribute to this effort.

"Israel's position with regard to the peace process with the Palestinians is founded upon fundamental principles, the most central of which is the existence of two nation-states, with each state addressing the national aspirations of its own people - Israel for the Jewish people and Palestine for the Palestinian people - and with both states coexisting in peace, free from the threat of terrorism and violence. For this purpose, a direct dialogue between Israel and the Palestinians is necessary." The statement added: "Israel also believes that moderate Arab states can fill a positive role by encouraging regional cooperation, and supporting the Israel-Palestinian track. A dialogue between these states and Israel can contribute to this end."

Defense Minister Amir Peretz said on Thursday during a meeting called to discuss the Riyadh summit that Israel should derive satisfaction that the Arab consensus adopted the principle of ending the conflict and normalization with Israel.

According to Peretz, Israel will make a mistake if it ignores the Arab initiative, which should be seen as a basis for negotiations on a permanent status agreement with Palestinian Authority Chairman Mahmoud Abbas. Participants at the meeting warned that a lack of response by Israel to the Riyadh conference might ratchet up international pressure and lead to the blaming of Israel for a freeze in the diplomatic process, which might deny it the freedom to act diplomatically and militarily.

Deputy Premier Shimon Peres called on the Arab states "to sit together with Israel and achieve an agreement, as we did with Egypt and Jordan. Unilateral declarations, in which each side presents its positions, will not achieve anything," Peres said.

The European Union hailed the renewed Arab peace initiative as encouraging Friday, but indicated it would stick with an aid scheme that bypasses the Palestinian government to go directly to the people.

EU foreign ministers will continue to evaluate the intentions of the new Hamas-Fatah coalition government.

"Our commitment to the peace process remains one of the most important foreign policy priorities of the European Union," German Foreign Minister Frank-Walter Steinmeier said.

EU foreign policy chief Javier Solana briefed participants on the outcome of this week's Arab League summit in Riyadh, Saudi Arabia.

The summit, spearheaded by Saudi Arabia, relaunched an Arab plan from 2002 which calls for full recognition of Israel by the Arab world in return for an Israeli to the pre-1967 boundaries and a just solution for Palestinian refugees.

"I see this as an encouragement for regional peace efforts between Israelis and Palestinians," Steinmeier said.