The Israeli Prime Minister today described an Arab plan to make peace with the Jewish State as "revolutionary" and said the region could sign a final deal within five years.

Ehud Olmert made his remarks in a series of newspaper interviews this morning, after leaders of the 22 Arab countries gave their unanimous backing to a plan which would commit them to developing diplomatic relations with Israel if it first agreed to a "land-for-peace" deal with the Palestinians.

The Arab leaders' plan - originally drawn up by Saudi Arabia in 2002 - would see the concept of a Palestinian state founded in the occupied West Bank and Gaza Strip with Jerusalem as its capital.

Only two states, Egypt and Jordan, currently have full diplomatic relations with Israel after signing peace treaties in 1979 and 1994, so the latest pledge for full diplomatic normalisation - which includes the hawkish Syrian regime - is regarded as hugely significant.

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What a difference five years in the Middle East can make

Richard Beeston

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Speaking to the mass-circulation Israeli Yediot Aharonot newspaper today, Mr Olmert hailed the agreement as a possible new beginning for the region.

“There is a real possibility that Israel can sign a global peace accord with its enemies within five years," the Israeli Prime Minister said.

Asked whether he meant “all of the Arab world,” the Israeli leader replied: “yes."

In an interview with the liberal Ha'aretz newspaper, Mr Olmert added that he believed a bloc of states was "emerging that understands that they may have been wrong to think that Israel is the world's greatest problem".

“That is a revolutionary change in outlook," he added. “There are things that are happening, which have not happened in the past, which are developing and ripening."

However, Mr Olmert stressed that although the plan was a positive step, he still had reservations over a number of details.

In particular, these are that a future Palestinian state should have Jerusalem as its capital city, and that the descendents of Palestinian refugees who lived in what is now Israel prior to its formation in 1948 should be allowed to return to what is now the modern day state.

However, the Prime Minister said that he wanted to iron out those differences as part of direct negotiations with the Saudi Government.

“We are ready to hold discussions and hear from the Saudis about their approach and to tell them about ours," Mr Olmert told Ha'aretz.

“Saudi Arabia is the country that in the end will determine the ability of the Arabs to reach a compromise with Israel."

Yesterday's Arab agreement marks the latest stage of a dramatic 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.

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