Mahmoud Abbas, the Palestinian president and the head of Fatah, postponed his planned trip to Gaza for talks with Ismail Haniya, the prime minister and Hamas leader, and both sides said no new date has been set.

Hamas has refused to recognise Israel and Fatah have said that such ideological differences impede the formation of a unity government.

Fatah, under the late Yasser Arafat, recognised Israel and conducted several rounds of peace talks, resulting in partial agreements. However, a full peace treaty eluded the two sides.

Impasse

Hamas and Fatah have appeared close to agreement on several occasions based on the "prisoners' document", a programme put together by prominent Palestinians in Israeli prisons, which calls for a Palestinian state in the West Bank and Gaza. Some believe that implicitly accepts Israel next door, without stating the recognition.

Neither side would give a reason for the latest delay or speculate about the next move.

The prospect of a new front in peace moves emerged on Monday when Israeli media reported that Olmert met a senior Saudi official. Saudi Arabia won praise from Olmert for its measured stance during the recent Israel-Hezbollah war, and it has recently revived a peace initiative based on pan-Arab acceptance of Israel in exchange for an Israeli withdrawal from all of the West Bank.

Speculation

The Yediot Ahronot daily reported that Olmert and an unidentified top Saudi official met 10 days ago. The talks focused on Iran's nuclear programme and the need to achieve peace between Israel and the Palestinians, the newspaper said.

The Israeli daily Haaretz later reported that the meeting took place on September 13, and Israel's Army Radio said the talks were held in the royal palace in Riyadh.

But Olmert denied the meeting, saying: "I did not meet with the Saudi king and I did not meet with anyone who should cause a media stir. I didn't hold any meetings with anyone. All the rest is just imagination and speculation."

A Saudi official, speaking on condition of anonymity because he was not authorised to speak to the media, called the reports of a meeting "a figment of their imagination".

Also on Monday, an Israeli military court ruled that 21 Hamas legislators and cabinet ministers would remain in Israeli custody, overruling a lower court.

Israel rounded up dozens of Hamas officials after Hamas-linked fighters captured an Israeli soldier in a cross-border raid in late June.