Olmert and Abbas resume meetings after hiatus

By Adam Entous

JERUSALEM (Reuters) - Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas met for the first time in nearly two months on Monday with Palestinians cautioning that settlement expansion undercut the chances of a peace deal.

Abbas aide Saeb Erekat described differences over building in Jewish settlements, especially around Jerusalem, as "very deep", but Israeli officials said the leaders agreed not to allow such issues to interrupt the U.S.-brokered negotiations.

Abbas last month briefly suspended the talks, which have shown little outward sign of progress, after an Israeli offensive in the Gaza Strip that killed more than 120 people.

"The peace process has credibility that needs to be restored. The continuation of settlement activities eats up this credibility and undermines the possibility of reaching a peace agreement," Erekat said after the meeting, the first between the leaders since mid-February.

Palestinian concerns centre on Olmert's decision to press ahead with building in major settlement blocs in the occupied West Bank despite international protests.

A senior Israeli official said Olmert told the meeting that Palestinian security forces were not doing enough to rein in militants opposed to Abbas's peace moves.

"It was agreed that despite concerns that both parties have concerning issues on the ground ... the negotiations will continue with the goal of reaching an historic agreement by the end of the year," said Mark Regev, an Olmert spokesman.

The United States has stepped up pressure on both sides to take confidence-building steps ahead of a visit by President George W. Bush in May. Washington hopes they can clinch a Palestinian statehood deal before Bush leaves office in January.