"I invite you to start serious political negotiations according to an agreed calendar, with the aim of establishing an independent Palestinian state with Jerusalem as its capital, existing alongside Israel," Abbas told the summit.

In return, Olmert stressed he was "extending a hand" of reconciliation to moderate Palestinians.

"It is important for every Palestinian to understand that we are extending a hand to those who are willing to have peace and reconciliation with us," he told Abbas, Hosni Mubarak, the Egyptian president, and King Abdullah of Jordan.

"There is no other solution than two states living in peace and security," Olmert said.

However his offer came with conditions as he said he would ask his cabinet to approve the release of 250 members of Abbas's secular Fatah movement "without blood on their hands" but stressed that those prisoners must commit to renounce "terrorism."

'Mending the rift'

Hosni Mubarak, the Egyptian president, made a call for inter-Palestinian dialogue to mend the rift.

"Our deliberations today affirmed the parallel need to end disagreements, and unify the Palestinian ranks through dialogue," the Egyptian leader said.

He said "the resumption of dialogue between all the children of Palestine, and the achievement of a common position that speaks for its people and its cause, is an immediate requirement that can bear no delay."

Ismail Haniya, the sacked prime minister, said on Monday that Hamas movement was ready to immediately take part in inter-Palestinian talks.

"Prime minister Ismail Haniya favourably received the appeal launched by President (Hosni) Mubarak at Sharm el-Sheikh in favour of a revival of inter-Palestinian dialogue," Haniya's office said in a statement.

"Hamas for its part is disposed to immediately take up this dialogue" with Fatah movement, it said.