Mid-East peace stakes raised

Palestinian leaders celebrate Yasser Arafat's stand on Jerusalem

Israeli and Palestinian officials say they will resume peace talks in the Middle East on Sunday, just days after the collapse of the Camp David summit.

The Israeli negotiator Gilead Sher and the chief Palestinian negotiator Saeb Erekat said they both saw hope that an agreement could be reached soon.

Correspondents say that both sides will be aiming to conclude before 13 September, when the Palestinian leader Yasser Arafat has threatened to declare a Palestinian state with or without an agreement.

If the issue is preserving the fundamental interests of the Palestinians and the Israelis, and the genuine sanctity of the Muslim, Christian and Jewish interests in the Holy City... I think we can do that

US President Bill Clinton

The developments come as some US congress members announced draft proposals to cut off American aid to Palestinians, currently worth $80m (£52.7m), if Mr Arafat carries out his declaration threat.

The measures are being backed by several members, and are supported by US first lady and New York Senate candidate Hillary Clinton.

However, a BBC correspondent says that the moves might be more related to securing the influential Jewish vote in the New York congressional elections, and are not widely supported.

US President Bill Clinton remains optimistic that the two sides can still reach a compromise over the status of Jerusalem, the key stumbling block at the Camp David summit.

High hopes

Mr Clinton told a news conference that the 15-day summit meeting had not been long enough to resolve that particular question.

But he said he believed there was a possible solution which preserved the fundamental interests of the two sides and the sanctity of the three religions for which Jerusalem is a holy city - Judaism, Islam and Christianity.

Speaking on Israeli radio, negotiator Gilead Sher said he was optimistic that agreement could be reached "in not too long a time".

For the Palestinian side, Saeb Erekat expressed similar views, and said he believed a deal was possible before 13 September.

Israel has threatened to annex parts of the West Bank if Mr Arafat declares a Palestinian state in the absence of an agreement.

I have to say in anguish that we have not yet succeeded because we did not find a partner that was prepared for hard decisions

Israeli Prime Minister Ehud Barak

The BBC's Hilary Andersson in Jerusalem says that this could lead to a serious escalation of the conflict, and so it is not in the interest of either side to let the situation develop.

The venue for the talks has not been disclosed, nor the agenda, but ways to break the deadlock over Jerusalem are likely to be high on the list.

Israeli concessions

Israeli newspapers are reporting that during the talks Ehud Barak considered giving the Palestinians significant status in the Old City, including possibly a presidential office for Yasser Arafat within its walls.

Jewish children study a map of Jerusalem - the main sticking point

Our correspondent says reports that Israel is willing to make far-reaching concessions will be damaging to Mr Barak, who needs to rebuild his ruling coalition.

While Mr Arafat returned home to a hero's welcome for his refusal to cede sovereignty over Jerusalem, Mr Barak arrived back in Israel to a formal military reception.

He blamed the Palestinian leader for the failure of the summit, saying that he was "afraid to make historical decisions".

For his part Mr Arafat admitted that although agreement had not been reached, settlement had come close.

But, after his uncompromising stand at Camp David, correspondents say Mr Arafat needs to keep the peace initiative alive or risk losing Israeli concessions.