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German Chancellor Angela Merkel welcomed the prospect of renewed talks between Israel and the Palestinian Authority on Monday, during a visit to Berlin by Palestinian President Mahmoud Abbas.

Merkel, who met last week with Israeli President Shimon Peres, said both the Israelis and the Palestinians recognized that it was in their interest to resume negotiations.

"Now it is about finding acceptable conditions for such talks," Merkel said, adding that so-called "proximity talks" could provide the groundwork to resume direct negotiations.

These initial discussions, as proposed by US Middle East envoy George Mitchell, would take place indirectly, using the US as a mediator between the Israelis and the Palestinians.

"I think Israel is positive about the prospect, and it would be good if the Palestinian side could also reach a positive assessment," the chancellor said of Mitchell's proposal.

Abbas said the Palestinians would decide within the next week whether to accept Mitchell's conditions to resume talks aimed at a two-state solution for Israel and the Palestinian Territories.

"If Israel stops the settlements for a certain period of time and is prepared to return to the basic agreement, we are prepared to negotiate with them," Abbas said, in reference to the 2003 peace agreement, or road map.