Libyan leader Muammar Gaddafi could forge ties with Israel, an Israeli opposition member of parliament says.
Gaddafi has previously called for Israel's destruction
Ephraim Sneh, who met the Libyan leader's son last August, said "Gaddafi has made a strategic decision, and he is not a man of small steps".
His remarks come amid media reports that Israeli and Libyan officials met last month to discuss the issue.
But Libya, which has never recognised Israel and called for its destruction, has denied any meetings took place.
Libya announced dramatically last month it would give up banned weapons.
Mr Gaddafi's son - Seif al-Islam - is considered a likely successor to the Libyan leader.
Only two Arab nations, Egypt and Jordan, have full diplomatic relations with Israel.
Mauritania, a member of the Arab League, has recognised Israel since 1999.
Mr Sneh confirmed on Wednesday that he and another Israeli legislator had met the Libyan leader's son on the sidelines of an academic conference.
"He [Colonel Gaddafi] will not stop half-way. He could go as far as relations with Israel, and beyond," Mr Sneh told Israel Radio.
Mr Sneh spoke as both the Israeli and Arabic media reported that Libya and Israel had been exploring the possibility of establishing relations.
A senior Israeli foreign ministry official, Ron Prosor, met an Arab official in Paris in late December, to test the waters, Israeli reports said.
Israeli Government sources have refused to confirm the report officially.
But the daily Haaretz said Mr Prosor had briefed Prime Minister Ariel Sharon about the initiative.
Unnamed officials in Mr Sharon's office said the chance of relations with Libya did not "appear serious".
And the foreign ministry issued a statement saying: "It's still a very long way down the road before Israel and Libya can establish diplomatic relations.
"The Libyan leader has to demonstrate in action that he is headed toward real negotiation."
A Libyan foreign ministry spokesman said no meeting had taken place at all.
"We would like to assert that officials in Libya have investigated this issue and have not found any evidence of it," Hassouna al-Shawish said, according to official Libyan news agency JANA.
"Whoever is circulating these reports should provide proof by stating the date and place of these meetings, as well as the people involved.
"International relations are not built on rumours and intrigues," he said."
A Kuwaiti newspaper sparked the speculation about possible Libya-Israel relations on Tuesday by reporting that an Israeli delegation was due to visit Tripoli later this month for talks.
Al-Siyasa newspaper said officials from Israel's foreign and defence ministries and Mossad intelligence service would hold talks in Libya on ending hostilities between the two countries - which date from Israel's founding in 1948.
It quoted European diplomatic sources as saying that high-ranking Libyan and Israeli officials met an American diplomat in Vienna last Friday.
The newspaper said the Libyan leader's son, Seif al-Islam, and the head of Libyan intelligence, also met Israeli officials several times in Geneva and London last year.
Israeli diplomatic sources called the report "exaggerated and far-fetched", the Jerusalem Post reported.