Arab leaders today gave their unanimous backing to a plan which would commit them to developing diplomatic relations with Israel if the Jewish State first agreed to a "land-for-peace" deal with the Palestinians.

The region's leaders voted in favour of reviving a Saudi Arabian peace plan, first launched in 2002, which supports the concept of a Palestinian state founded in the occupied West Bank and Gaza Strip with Jerusalem as its capital.

In return, the resolution committed all 22 Arab states to normalise relations with Israel. At present only two, Egypt and Jordan, have full diplomatic relations with the Jewish State.

Today's resolution, at the annual Arab summit in Riyadh, was agreed after a passionate speech by Mahmoud Abbas, the Palestinian President, appealing to Israel "not to miss another chance".

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Iran's growing influence, along with the inability of the US to come up with any new initiatives, pushed King Abdullah to act

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"From here, I confirm the Palestinians will to extend a hand of peace to the Israeli people," Mr Abbas said, in front of an audience of the region's kings, emirs and Presidents.

Israel's initial response appears ambiguous with a spokesman for Ehud Olmert, the Prime Minister, saying it represented a "possible basis for dialogue," but that its details would first have to be studied further.

Shimon Peres, the country's deputy Prime Minister, later told Army Radio that the Arab states' terms had to be open to negotiation to have any chance of succeeding.

"There is only one way to overcome our differences, and that is negotiation," Mr Peres said. "It’s impossible to say: you must take what we offer you as is."

Israel is likely to want to negotiate over two of the key details of the resolution. These are the right of return of Palestinian refugees - made homeless during the 1947 war which brought about the Israeli state - as well as the Arab demand that Jerusalem be the capital of a future Palestinian state. Israel considers Jerusalem as its united capital since occupying the eastern section of the city from Jordan in the 1967 War.

Concluding the two-day conference, Arab leaders agreed to create working groups, that will seek to drum up support for the deal from the US, UN and Europe.

Amr Moussa, the Arab League's secretary general, said: “We affirm a just and comprehensive peace as a strategic option for the Arab nation in accordance with the Arab peace initiative that is the right path to a peaceful settlement of the Arab-Israeli conflict ... based on land-for-peace."

The agreement marks the latest stage of a dramatic new Saudi Arabian strategy to get involved in the Middle East peace process, after years of isolation. This is likely to be motivated by a desire to counter-balance Iran's growing influence in the region, as well as the United States' corresponding failure to come up with any meaningful recent initiatives of their own.

Traditionally, the oil-rich Saudi kingdom has avoided taking centre stage in resolving the regional crises. But last month it mediated the creation of a Palestinian national unity Government, heading off what many feared could become a civil war between the rival Hamas and Fatah factions.

The Saudis, who have not hosted an Arab League summit for more than 30 years, then offered to convene the current conference.

It is hoped that the initiative could open the way to real dialogue for the first time since 2000. UN officials are trying to plot the next step by convening a meeting next month in Egypt of the Quartet — America, the European Union, Russia and the UN — which coordinates Arab-Israeli peace efforts. This time other countries, such as Egypt, Jordan, Saudi Arabia and the United Arab Emirates, would be invited to attend.

The next move would be to engage directly with Israel and the Palestinians, whose leaders this week agreed to hold fortnightly meetings.

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