The two leaders huddled for nearly three hours in the casino of an upscale hotel in the West Bank town of Jericho, trying to find common ground ahead of the international peace conference called by US President George W Bush.

"I came here in order to discuss with you the fundamental issues outstanding between Israel and the Palestinian Authority, hoping this will lead us soon to negotiations about the creation of a Palestinian state," the Israeli premier said at the start of the talks.

It was the first time in seven years that such a high-level meeting had taken place in Palestinian territory, and security was extremely tight.

Swarms of Israeli security personnel were deployed around the hotel complex, blocking it off by a radius of one kilometre (more than half a mile), and telling employees to stay at home.

But expectations of progress were low, as the two sides cannot agree on how to proceed ahead of the conference that Washington has called in a bid to jumpstart peace talks, which have been dormant for more than six years.

"We don't really have a lot of expectations for this meeting," chief Palestinian negotiator Saeb Erakat said ahead of the encounter.

While the Palestinians want Abbas-Olmert discussions to focus on "core issues" -- the thorniest problems dogging the decades-long conflict such as Jerusalem, borders and refugees -- Israel says it is too early to tackle these.

US Secretary of State Condoleezza Rice expressed optimism that there would be progress after she met the two leaders separately last week, but the camps remained far apart ahead of Monday's talks.

Washington is keen to capitalise on a thawing of relations between Abbas and the Israelis in the wake of the Gaza takeover by Islamist Hamas in mid-June and to speed up the peace process.

Abbas's senior aide Nabil Amr said the Palestinian president was planning to "focus on political issues and final negotiations," adding that "both sides... must decide on a resolution for the final issues."

But Israeli government spokesman David Baker said that there would be "no negotiations on issues" and that the meeting's aim was "to build confidence among both leaders... to maintain the relationship and build upon it."

Palestinian officials have insisted that the two sides come up with a deal on the "core issues" ahead of the autumn peace conference, and then implement the agreement at the meeting.

But Israeli officials have said there would be no final agreements reached before the US-called conference, which they expect to take place in November.

"I can't see the two sides sitting down to discuss the core issues before November," a senior Israeli government official told AFP.

Rather the two leaders would "discuss ways to move forward by November to create some kind of basis for a peace agreement, but no permanent settlement will be reached at the summit itself."