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A meeting between Prime Minister Ehud Olmert and Palestinian Authority Chairman Mahmoud Abbas in Jerusalem on Sunday included discussions on the nature of a future Palestinian state, an official in the Prime Minister's Office said.

Olmert and Abbas avoided, however, the thorny final status issues of borders, Jerusalem, and refugees.

"They did not speak about final status issues," David Baker told Haaretz. "They did speak about a political horizon, which included economic cooperation with a future Palestinian state and expanding the dialog about economic ventures with the Palestinians and how a future Palestinian economy would be comprised in such a state."

Baker said that the prime minister had reiterated his willingness to discuss the 2002 Saudi peace initiative, recently reaffirmed by the Arab League, despite misgivings over several aspects of the plan.

"The prime minister said he would willing to meet with Arab leaders even though there were several points that he does not accept," said Baker. "He would be willing to have a dialog with those leaders."

In addition, the prime minister informed Abbas that effective immediately the Karni goods crossing between Israel and the Gaza Strip would be open daily until 11 P.M., instead of 7 P.M. The move, Baker said, was "in line with continued Israeli efforts to alleviate the humanitarian situation in the Gaza Strip."

Regarding captured Israel Defense Forces soldier Gilad Shalit, Olmert told Abbas that he "should use more of his influence to bring about a resolution," Baker said.

Baker called the meeting "a serious and positive working meeting which was useful in maintaining the ongoing dialog."

The talks are the first between the two leaders since they agreed during a visit by U.S. Secretary of State Condoleezza Rice last month to meet every two weeks.

"We should not expect this one meeting to perform miracles," said senior Abbas adviser Saeb Erekat.

Under pressure from Rice, Olmert agreed to discuss final status issues and future relations between Israel and a Palestinian state with Abbas. But a source close to Abbas said the Palestinian side believes that as far as Olmert is concerned, the meeting is mainly intended to give Rice the impression of assisting Abbas.

"We are coming with particularly low expectations," the source said.

Olmert and Abbas agreed to hold their next meeting in the West Bank - in what would be their first summit in a Palestinian town.

"They have agreed to hold their next meeting in Jericho," said Palestinian negotiator Saeb Erekat, who participated in Sunday's session.

Olmert's spokeswoman, Miri Eisin, confirmed that the next meeting would probably be in Jericho.

Meanwhile, Foreign Minister Tzipi Livni met with her Jordanian counterpart Sunday on ways to restart peace negotiations with the Palestinians.

Egyptian Foreign Minister Ahmed Aboul Gheit discussed the Saudi initiative in a phone call to Livni before the Passover holiday, which ended last week.

Possible overtureOlmert told the cabinet prior to his meeting with Abbas that he was "willing to hold a dialog with any grouping of Arab states about their ideas," an apparent nod toward the Saudi initiative.

Arab League Secretary-General Amr Moussa and representatives of the 11 Arab member states will meet on Wednesday to move the peace initiative forward. The plan was reaffirmed at the Riyadh summit last month.

On Saturday, government sources said Israel was waiting for the official appointment of the Arab League committee this week. "If its goal is to further the Saudi initiative, then from our point of view, it is possible to engage in dialogue with it," one source said.

American officials, including U.S. Ambassador to Israel Dick Jones, have said recently that the expected dialogue between the Arab League and Israel would be a move of historic significance.

After the special committee is established, the Arab League will seek to engage in talks with the five permanent members of the United Nations Security Council, the Quartet and other international organizations, in order to further the initiative.