Israeli Prime Minister Ariel Sharon is refusing to let Palestinian officials attend a conference planned in London next week.
Mr Blair's meeting with opposition leader Amram Mitzna, who wants peace talks with the Palestinians to restart immediately, is set to add to Mr Sharon's irritation.
The Israeli premier pre-empted a letter from Mr Blair urging a rethink over the conference by insisting he will not change his mind.
'Dialogue continues'
Mr Sharon imposed the travel ban after a double suicide bombing in Tel Aviv at the weekend.
The blasts killed 24 people including the two Palestinian bombers, and injured dozens of others.
Thursday's meeting with Mr Mitzna comes at a sensitive time - just three weeks before Israel's general election.
Last month, Israeli Foreign Minister Binyamin Netanyahu was refused a meeting with Mr Blair when he visited London in a further sign of tensions.
'Publicity stunt'
Next week's planned London conference was due to examine how the Palestinian Authority can be reformed.
It was to have involved representatives from America, the European Union, the United Nations, Saudi Arabia, Jordan and Egypt. Israel was not invited.
The conference was dismissed by Mr Netanyahu as "some publicity stunt abroad".