Middle East negotiators were trying to keep alive hopes for next week’s peace summit last night after Israel’s release of nearly 450 Palestinian prisoners failed to achieve a breakthrough.

Israel vowed to stop building new West Bank settlements and Tony Blair, in his role as a regional envoy, held out the prospect of thousands of new Palestinian jobs from the resumption of four big economic projects in the West Bank and Gaza.

But one main sticking point was Israel’s refusal to halt building work in existing settlements.

Talks between Ehud Olmert, the Israeli Prime Minister, and Mahmoud Abbas, the Palestinian President, broke up after failing to bridge differences ahead of next week’s summit in Annapolis, Maryland.

Palestinian negotiators want the summit to discuss core issues such as borders, the right of return for Palestinian refugees and the status of Jerusalem, as well as specific timelines for progress.

Israel views it more cautiously, as a ceremonial start of negotiations that will eventually return to the guidelines of the 2003 “road map” for Middle East peace. With hopes fading that both sides will be able to issue a joint declaration of principles – originally intended as the centrepiece – observers are warning that the two leaders are likely to deliver separate statements.

Mr Olmert will meet President Mubarak of Egypt today in the hope of garnering more Arab support for the event, amid fears that the Saudis – key powerbrokers in any progress – may not even turn up in Annapolis. Saudi officials are threatening to stay away unless there is discussion of core issues.

The Israeli Cabinet approved the release of 441 Palestinian prisoners yesterday, the largest such release in years. But the total fell short of the 2,000 that Palestinian leaders were demanding of the 11,000 prisoners held by Israel.

In what is expected to be their last meeting before the summit, there had been some progress in talks with Mr Abbas, a spokeswoman for Mr Olmert said. Their negotiators were meeting last night for further talks. But Mr Abbas said: “We need to hear from him [Olmert] things that will satisfy us, so we can go to Annapolis on a solid basis.”

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