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Prime Minister Ehud Olmert is conducting secret talks with Palestinian Authority Chairman Mahmoud Abbas.

Olmert, in conversations with ministers and other political figures in the last few days, has hinted that he and Abbas have been holding talks, but did not reveal the content or venue of the talks, or the level of those involved.

The people Olmert spoke to say he expects significant political progress this summer.

The secret talks appear to be about state affairs, rather than confidence building measures such as removing roadblocks and opening passages.

In her January visit to the region, American Secretary of State Condoleezza Rice said that Olmert and Abbas had agreed on starting "informal talks" about the character of the future Palestinian state. Abbas was the one who raised the idea at the time and Olmert agreed.

Olmert continued his public courtship of Saudi Arabia yesterday. At a meeting with German Foreign Minister Frank-Walter Steinmeier, who is visiting Jerusalem, Olmert said he took a positive view of developments in the Arab world, led by Saudi Arabia and other moderate Arab states.

The Prime Minister's Bureau issued a statement saying Olmert spoke of the Arab states' readiness to reach a peace arrangement that includes recognition of Israel, and stressed the central role played by Saudi Arabia, which has much influence on the Palestinians and the moderate Arab states.

However, Olmert stressed that Israel was adamant about rejecting the Right of Return as reflected in the Arab initiative.

Olmert spoke to Steinmeier about "strengthening the moderate Palestinian forces" and warned that Israel would not be able to restrain itself for long if the Qassam fire from the Gaza Strip persists.

Olmert is apparently trying to work with Abbas to formulate a statement of principles, which could serve as a basis for a regional meeting or for establishing closer relations between Israel and Saudi Arabia.

A few weeks ago, Riyadh rejected an American proposal for a regional meeting attended by Olmert, Abbas, the international Quartet and moderate Arab states. Nonetheless, the Saudis continue to display keen interest in an Israeli-Palestinian arrangement. In fact, Japanese Prime Minister Shinzo Abe was told by Saudi Arabia's leaders some 10 days ago on his visit there that a solution to the Israeli-Palestinian conflict would remove the main problem threatening the area.

In a few days, Olmert is to deliberate Israel's response to the American "benchmarks" document, which urges Israel to remove roadblocks in the West Bank and expand the activity of the passages to the Gaza Strip in exchange for Palestinian security measures.

Defense Minister Amir Peretz, his deputy Ephraim Sneh and Chief of Staff Gabi Ashkenazi are to discuss the defense establishment's position on the benchmarks, in view of the IDF's objection to removing the roadblocks.