In January, Israeli and Palestinian negotiators began talks on the "core issues" at the heart of the Middle East conflict - Jerusalem, borders and the continued building of settlements, refugees and the "right of return".

Both sides have failed to agree on a deal that is suitable for Israel, and will contribute to the building of a Palestinian state.

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Talks on the status of Jerusalem, and the Palestinian demand to make the city its capital, has been relegated to "last" on the agenda by Olmert.

The move has drawn criticism but Olmert said that Abbas agreed to the decision.

Olmert said: "Jerusalem will be the last issue to be negotiated."

"It has been agreed, discussed and accepted between me and the  president of the Palestinian Authority [Mahmoud Abbas]."

Saeb Erekat, a Palestinian negotiator, denied there was an agreement to separate Jerusalem from the other core issues.
  
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"The issue of postponing any of the final-status questions has not come up. This is not true," he said.

Israel occupied east Jerusalem during the 1967 war and has since declared the entire city its "eternal, undivided capital".
  
Under international law, Israel's annexation of the Arab eastern sector is illegal.

Hamas target

Olmert said he will make every effort to reach a peace agreement with the Palestinians this year. But he vowed that the army "will hit everyone who attacks Israel".

He said: "We will reach out for anyone involved in perpetrating terrorism against Israelis, and we will not hesitate to attack them in order to stop them.

"That applies to everyone, first and foremost Hamas. Hamas is in charge of Gaza."