Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas met at the prime minister's residence in Jerusalem Tuesday evening. Foreign Minister Tzipi Livni, who heads the Israeli peace negotiations team, and the head of the Palestinian team, Ahmed Qureia, were also present at the meeting.

The two leaders did not discuss the sensitive issue of Jerusalem during their meeting, despite Abbas' earlier calls not to postpone addressing the contentious issue, a senior official at the Prime Minister's Office said.

"The issue of Jerusalem did not come up in the discussion. I'm not aware of changes in the Israeli position," the official said.

Israeli officials said the leaders had agreed to accelerate peace talks.

However, senior Abbas aide and Palestinian negotiator Saeb Erekat disputed the report that Jerusalem was not discussed, saying that the leaders had discussed "all the core issues."

Erekat said Abbas and Olmert reviewed the issues without reaching agreement and set another meeting in two weeks. Abbas also raised concerns about Israel's blockade of Gaza and pushed for release of Palestinian prisoners.

Olmert's spokesman Mark Regev said following the meeting that "Israel is committed to discussing all the core issues," adding that negotiators would meet on an "almost daily" basis.

Regev said Olmert was "very clear" earlier this week when he asserted Abbas had accepted an Israeli suggestion to delay talks on Jerusalem until the end of negotiations on Palestinian statehood.

He declined to say whether the prime minister had changed his position after Palestinians this week insisted that Abbas had made no such commitment.

The two leaders began meeting regularly even before they promised U.S. President George W. Bush last November to work toward an agreement by the end of the year.

Though Olmert has said he is committed to painful compromises for peace, his government is pressing ahead with construction projects in a disputed part of Jerusalem and maintaining dozens of West Bank roadblocks, angering the Palestinians - while Abbas appears incapable of retaking control of the Gaza Strip from Hamas militants, who have been taking part in daily rocket barrages at Israel.

In Gaza City, the Hamas Cabinet released a statement saying Abbas has no mandate to make concessions to Israel.

Earlier Tuesday, Livni said that halting peace talks with the Palestinian Authority would not bring an end to terror attacks against Israelis.

"Whoever thinks stopping negotiations will stop terror is not in touch with reality," Livni told a Jerusalem conference.

The ultra-Orthodox Shas party, a key coalition ally of Olmert's, has threatened to quit the government should peace talks progress despite the ongoing Qassam rocket fire from the Gaza Strip and habitual Palestinian attacks in the West Bank.

Earlier Tuesday, Palestinian Prime Minister Salam Fayyad told a group of American Jewish leaders in Jerusalem that little progress was being made in peace negotiations between Israel and the Palestinians, and a peace agreement likely won't be possible by the end of the year if the pace isn't quickened.

"My own sense ... is that not enough has happened over the past nearly three months that could suggest to me that a treaty per se is going to be possible by the end of 2008," Fayyad told a delegation from the Conference of Presidents of Major American Jewish Organizations. "The pace has to be stepped up significantly."

Discussing the Gaza Strip, Fayyad said success in peace negotiations would undermine support in Gaza for Hamas.

Progress in talks will create a positive dynamic, generating support in Gaza for the moderate Palestinian government he heads, Fayyad said. "How long [Gaza] will take to settle I do not know," he said.

Fayyad said the U.S. Congress had set aside $218 million in aid for the Palestinians, and he expected the funds would be transferred next month. The money is part of $7.7 billion pledged to the Palestinians by international donors at a conference in Paris in December.

Fayyad said the Palestinians were likely to hold another major investors conference in Bethlehem "immediately after" a World Economic Forum event scheduled to take place in Sharm el-Sheikh in mid-May.

Israeli source: U.S. agrees to delay talks on Jerusalem

A senior Jerusalem source said Monday that Olmert and U.S. Secretary of State Condoleezza Rice had agreed to defer talks on Jerusalem to the final stage of negotiations with the Palestinian Authority.

The source said Olmert and Rice had talked on the telephone about a week and a half ago, and that Rice accepted Olmert's position that discussing Jerusalem at the very beginning could jam the negotiations and obstruct them.

However, Abbas insisted Monday that discussions on the status of the city must not be postponed.