The Nobel peace laureate told Arab officials at a World Economic Forum in Jordan that Israel would come up with a counter-offer to the Saudi-drafted blueprint first adopted in 2002 and relaunched at an Arab summit in March.

But he gave no firm timeframe for delivery of the counter-proposal, drawing questions from Arab League chief Amr Mussa about the Israeli government's seriousness.

"The Arab League has proposed. Fine. We shall make a counter-proposal," Peres said during a panel discussion on Arab-Israeli relations also addressed by Mussa.

"Let's sit together, air out our differences.

"If you are serious and we are serious, let's sit together."

The Arab peace plan offers Israel full normalisation of relations in return for a full withdrawal from Arab lands occupied in 1967 and resolution of the Palestinian refugee issue.

Israel rejected the blueprint wholesale when it was first unveiled but has since warmed to the draft as a basis for negotiation, provided there are changes on the refugee issue.

Meanwhile, Israeli warplanes sent missiles slamming into a car carrying Hamas militants early yesterday, then demolished arms factories belonging to two Palestinian groups, the army said, in a widening of reprisals against Gaza rocket squads.

In Jerusalem, Prime Minister Ehud Olmert threatened tougher action if the intensified rocket fire on Israeli border communities didn't cease.

The sixth straight day of airstrikes came as an uneasy truce between warring Palestinian factions set in. Masked Hamas and Fatah gunmen who had controlled the streets and taken over apartment buildings in the previous week scaled back their presence sharply, and residents who had holed up at home seeking refuge from the gunbattles ventured out to stock up on supplies at busy shops.

Children went back to school in time for final exams, and adults returned to work.

Four previous truces last week quickly collapsed, but Hamas spokesman Fawzi Barhoum said he expected the cease-fire deal reached Saturday to stick because of Israel's military action.

"No one would accept to fight one another while the Israelis are shelling Gaza," he said.

More than 50 Palestinians have been killed in fighting that broke out after Palestinian President Mahmoud Abbas of Fatah stationed thousands of loyalist security forces on the streets of Gaza City without consulting Hamas, its partner in the Palestinian governing alliance.

The infighting has threatened the survival of the fragile national unity government, formed in March to end an earlier round of factional bloodshed.