Prime Minister Benjamin Netanyahu on Wednesday said he was prepared to begin peace negotiations on every issue Palestinian President Mahmoud Abbas was interested in raising, but emphasized that he reserved the right to raise "core" issues of his own.

Earlier Wednesday, Abbas said he was willing to accept Netanyahu's invitation to meet on the sidelines of the United Nations General Assembly.

"If Abu Mazen [Abbas] really means what he has said, then this is a positive development," Netanyahu said, briefing reporters after flying to Berlin from London. "I've been saying for quite some time that I am ready to renew negotiations."

Netanyahu, who is on a four-day European tour, said he was open to discussing the future of Jerusalem, Palestinian refugees and permanent borders.

He added, however, that he would raise during negotiations Palestinian recognition of Israel as a Jewish state and would demand that the Palestinians declare the conflict over once an agreement was signed.

"We have core issues of our own and the matter of declaring Israel a Jewish state is the root of the conflict," Netanyahu said.

A meeting at the UN would be the first between the two leaders since Netanyahu took office in March. Abbas has refused to reopen peace talks until Netanyahu halts all construction in West Bank settlements, an issue still up for discussion.

Palestinian officials said Wednesday that Abbas was not dropping his conditions. They termed a meeting at the UN a chance to talk, but stressed that it would not amount to negotiations.

Netanyahu met earlier Wednesday in London with U.S. special Mideast envoy George Mitchell, where the two reported "progress" in preparations for peace negotiations. The prime minister said later, however, that "there was still work to be done."

Netanyahu and Mitchell failed to reach an agreement on West Bank settlements during their talks, but did concur on the need to renew direct peace talks with the Palestinians.

Meanwhile, German Chancellor Angela Merkel said Wednesday that Israel must be prepared to compromise for a two-state solution.

"We shouldn't let the window of opportunity pass," she said, ahead of her own talks with Netanyahu. "The time is absolutely right. Let us do everything to use it."

Netanyahu kicked off his two-day stay in Germany by meeting German President Horst Koehler at the head of state's official residence, and was to meet Merkel and German Foreign Minister Frank-Walter Steinmeier on Thursday.

Netanyahu and Mitchell report 'progress

In a joint message after the London talks, spokesmen for Netanyahu and Mitchell said the two agreed on the need to begin meaningful diplomatic negotiations between Israel and the Palestinians with the aim of reaching a regional peace agreement.

The next round of talks between Israel and the U.S. was scheduled for the beginning of next week in Washington. Israel will be represented at those talks by the PM's special envoy Yitzhak Molcho and Defense Ministry chief of staff Mike Herzog, who both participated in Wednesday's meeting. The two will meet again with Mitchell to discuss again the U.S. demand that Israel implement a settlement freeze.

Prior to his meeting with Mitchell, Netanyahu said his government was making progress toward reopening talks with the Palestinians and hoped to be able to do so shortly.

"We are making headway. My government has taken steps both in words and deeds to move forward," he said.

Netanyahu has pledged not to build any new settlements but wanted to enable what he called "natural growth" of existing enclaves.

The prime minister, whose comments during a photo opportunity were relayed to reporters by his spokesman, expressed hope the two sides would "shortly be able to resume normal talks."

"The goal is a wider peace, which is our common goal," he said.

Meanwhile, the British Guardian reported that President Barack Obama is close to breaking the stalemate between Israel and the Palestinians by getting Israel to agree to a partial settlement freeze in exchange for a tougher U.S. stand against Iran's nuclear program.

The report, which cites U.S., European, Israeli and Palestinian officials, said that Obama will be ready to announce the resumption of long-stalled peace talks between Israel and the Palestinians by the end of September.

"The message is: Iran is an existential threat to Israel; settlements are not," the Guardian quoted one official close to the negotiations as saying.

In exchange for Israel agreeing to a partial and temporary settlement freeze, the U.S., Britain and France would push the United Nations Security Council to expand sanctions on Iran to include its oil and gas industry, the report said.

Israel is also seeking normalization with Arab states, which would include the right for El Al to fly within Arab states' airspace, the establishment of trade offices and embassies and an end to the ban on travelers with Israeli stamps in their passports.

Poll: Most Israelis oppose settlement freeze

A poll released Wednesday in Israel showed freezing settlements would be an unpopular move. Almost two-thirds of those questioned told pollsters they opposed a freeze, even in return for moves by Arab countries toward normalization of ties with Israel. Thirty-nine percent said they would support a freeze in return for Arab gestures.

Conducted by the Maagar Mohot polling company, the survey questioned 506 Jewish Israelis and had a margin of error of 4.5 percentage points.