Hopes rose yesterday for a revival of the Middle East peace process with symbolic overtures from both sides.

An Arab League delegation made an historic first visit to Israel, while Ehud Olmert, the Israeli Prime Minister, spoke to the Palestinian President about establishing a Palestinian state.

Mr Olmert has also drawn up a plan of what final-status talks could look like, adding to the apparent momentum. It is understood that under the proposals, Israel would hand over 90 per cent of occupied territory and parts of Jerusalem to a future Palestinian state.

The foreign ministers of Jordan and Egypt arrived in Israel bearing an Arab League proposal for a land-for-peace deal. “We have heard a lot of positive commentary, from which we discern an intention on behalf of Israel to work seriously on giving the Palestinians an opportunity to achieve their state,” Ahmed Abul Gheit, the Egyptian envoy, said. His comments followed talks with Shimon Peres, the Israeli President, and Tzipi Livni, the Foreign Minister.

The plan, which was rejected by Israel when the 22-nation Arab League unveiled it five years ago, offers Israel normalised ties with the Arab world if it pulls back to the boundaries in place before the 1967 Six Day War, when it occupied the West Bank and Gaza.

After the withdrawal, a Palestinian state would be created and millions of refugees would be allowed to return, something that has been a sticking point for Israel in the past.

Israel has now sensed an opportunity in the split between the two main Palestinian factions, the secular Fatah with which it is negotiating in the West Bank, and the Islamist movement Hamas, which drove Fatah from Gaza last month. Israel hopes that it can bolster the Fatah-led Government while isolating Hamas in the tiny Gaza Strip.

Mr Olmert said for the first time yesterday that he had discussed measures to establish an eventual Palestinian state with Mahmoud Abbas, the Palestinian President and Fatah leader. “We have started very seriously to talk with Mr Abbas on a peace process and questions that can allow a Palestinian state to be established,” he said after talks with Mr Peres, a Nobel Peace prizewinner for his role in the 1990s Oslo accords.

“These discussions will continue at the pace we have agreed upon, and we are in agreement for them to continue until they bear concrete results.”

According to the Israeli newspaper Haaretz, Mr Olmert has offered the Palestinians talks to agree on the principles on which a Palestinian state with Jerusalem as its capital could be built. The Palestinians have been arguing that the small, trust-building measures offered so far by Israel — releasing prisoners and frozen funds and amnesty for wanted Fatah militants — were welcome but held no hope of a political settlement to work towards.

An Israeli official said that the new proposals aimed to rectify that obstacle, “so everyone understands where the process is going”. He emphasised, however, that it was still too early to begin final-status talks. The issue could bog down negotiations before they even got off the ground. “It’s talking about the principles of final status, making it clear what it looks like,” he said.Nabil Amr, an aide to Mr Abbas, said that no concrete initiative had so far been put on the table, but emphasised that the Palestinians’ “readiness for negotiations is high”.

Mr Olmert’s vision includes a Palestinian state in Gaza, and about 90 per cent of the occupied West Bank, Haaretz said. The two territories could be connected by a tunnel, with most of east Jerusalem as the capital of the new Palestinian state. While Israel might pull out of occupied parts of the city, it would not relinquish the Old City and the Mount of Olives.

While offering fresh hope for the moribund peace process, the plan is still less than was rejected by Yassir Arafat at talks in 2000 with Ehud Barak, then the Israeli Prime Minister. It was not clear whether the Israeli proposal — effectively talks about future talks — would overlap or collide with the Arab League plan. But the Egyptian and Jordanian foreign ministers, who have both visited Israel before, representing their countries, urged Israel not to dither.

“We need a precise timetable, a quick timetable, and we urge Israel not to waste this historic opportunity,” said Abdel-Ilah al-Khatib, the Jordanian Foreign Minister. “Time is not on our side.”

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