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Palestinian Authority Chairman Mahmoud Abbas told Prime Minister Ehud Olmert yesterday he will try to secure the release of captured Israel Defense Forces soldier Gilad Shalit as soon as possible, perhaps before the formation of the new PA unity government.

Olmert and Abbas met yesterday afternoon at the prime minister's residence in Jerusalem for more than two hours.

According to the Prime Minister's Office, the meeting was conducted in a "positive atmosphere."

The two leaders agreed to continue meeting on a regular basis "to discuss issues related to security, the war on terrorism, and improving the conditions in which Palestinians live," the PMO said. Olmert has also expressed a willingness to visit the PA for a future meeting.

As a goodwill gesture, Olmert pledged to extend the operating hours of the Karni crossing in the Gaza Strip.

According to official sources in the PMO, Olmert pressed Abbas to halt Palestinian rocket fire from Gaza and arms smuggling from Egypt.

The two leaders also discussed ways of moving the diplomatic process forward.

According to a senior Abbas aide, Saeb Erekat, the Palestinian leaders gave Olmert details on the Arab peace initiative.

Olmert reiterated his commitment to a two-state solution, in line with the speech he delivered at Sde Boker several months ago.

Abbas repeated his support for the three principles put forth by the Quartet of Middle East mediators: recognition of Israel, relinquishing violence and respecting previous accords between the two sides.

Abbas said efforts will be made to gain Shalit's release as soon as possible. He also asked for an extension of the cease-fire in the Gaza Strip, and agreed that this depended in great part on the actions of the Palestinian Authority.

Olmert made it clear that Israel will not discuss a cease-fire in the West Bank prior to its full implementation in the Gaza Strip.

Olmert also told Abbas that Israel will not recognize the unity government in the Palestinian Authority unless it accepts the three conditions set by the Quartet. The prime minister also warned that there will be no contacts with Palestinian ministers.

One of Olmert's messages to Abbas was that his close advisers should not be appointed as ministers in the unity government so that the contacts with Israel can continue.

Olmert inquired about the $100 million of Palestinian tax funds that Israel released to his custody. Israeli sources claim that a significant portion of the funds was used to pay salaries of officers in the various security organizations, instead of carrying out reforms in these groups, as originally promised.

It was agreed that officials from both sides will meet later this week and the Palestinians will explain how the funds were used.

Senior Abbas aide Mohammed Dahlan said the meeting was difficult and produced no agreements.

He said the Palestinians called on Olmert to ease travel restrictions in the West Bank by removing roadblocks, and to release sick and elderly Palestinian prisoners in Israeli jails, but Olmert made no promises.

Abbas also complained to Olmert about the expansion of settlements, about the separation fence and the excavations at the Mugrabi Gate in Jerusalem's Old City.

"[Abbas] asked that both sides should avoid taking steps that may undermine the results of negotiations on a permanent settlement," Erekat said.