Prime Minister Ehud Olmert has said Israel is ready to make "big and painful" concessions to advance the peace process in the Middle East.
Speaking in Tel Aviv, he also said a Saudi Arabian peace plan could be a starting point for future peace talks.
The plan offers Israel normalisation of ties with Arab states if it pulls out of all Arab land it occupied in 1967.
Israel rejected the plan outright after it was first proposed at an Arab summit in Beirut in 2002.
"Israel is ready to make big and painful concessions in order to encourage [peace negotiations in the region]," Mr Olmert told a gathering of kibbutz youth movement volunteers.
He said the Saudi plan could be a "convenient basis for future talks between us and moderate Arab elements".
"The Saudi initiative is interesting and contains many parts I would be ready to accept... not all of them," Mr Olmert said.
The plan also envisages the right of the Palestinian refugees to return to their homes in Israel.
Mr Olmert's comments come a week before an Arab summit in Riyadh, Saudi Arabia, where its participants are expected to revive the peace initiative.
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