No deal on Jerusalem in 2008, Olmert says

FM Livni says Kadima party lost their way under Olmert

OCCUPIED JERUSALEM (Agencies)

Israeli Prime Minister Ehud Olmert said on Monday that Israel and the Palestinians will not be able to agree this year on a peace deal that includes the crucial issue of Occupied Jerusalem.

"I don't believe that we can reach an understanding that will include Jerusalem by the end of the year," Olmert told parliament's powerful foreign affairs and defense committee, according to a senior official.

He expressed optimism that the two sides could bridge their differences on other core issues in the decades-old conflict.

But he seemed to rule out a comprehensive deal by year-end, despite a commitment made by the two sides at a conference hosted by U.S. President George W. Bush in Annapolis, Maryland last November that revived peace talks.

"There is no practical possibility to reach an overall understanding on the issue of Jerusalem at this time," Olmert said. "But there is an intention to create a mechanism that will continue to deal with the issue for a much longer period until we reach understandings that we can live with."

Israel captured mostly Arab east Jerusalem -- including the Old City with its holy sites sacred to Christians, Muslims, and Jews -- in the 1967 war and annexed it shortly afterwards. It declared the whole city its eternal and undivided capital, a claim never recognized by the international community or the Palestinians, who have demanded east Jerusalem as the capital of a future state.

The Palestinians slammed Olmert's remarks, insisting they would never agree to a deal that did not include Jerusalem.

"Jerusalem is a red line with respect to the Palestinian Authority and the Palestinian people and we cannot retreat one inch from it," Nabil Abu Rudeina, a spokesman for president Mahmoud Abbas, told AFP by phone from Cairo.

"East Jerusalem is the capital of the Palestinian state and Olmert's statements are an attempt to run away from the commitments of the Annapolis conference and the vision of President Bush," he said. "The American administration must work to push Israel to enter into serious negotiations and stop wasting time."

More talks

Already on the agenda is a meeting in Washington later this week between Israeli Foreign Minister Tzipi Livni and former Palestinian prime minister Ahmed Qorei, who are heading their respective negotiating teams.

The two sides launched their latest round of peace talks after a seven-year hiatus, vowing to try to reach a comprehensive agreement by the time Bush leaves office in January.

The talks have made little tangible progress since then, but Olmert said the gaps on other core issues, including the fate of 4.5 million U.N.-registered Palestinian refugees and final borders, could be bridged by the end of 2008. Olmert has vowed to put any agreement to a referendum.

Speaking at a rally in Occupied Jerusalem, Livni also said she was not sure the U.S. aim to reach an Israeli-Palestinian peace deal this year could be met.

"The best efforts will be made to meet the 2008 target, but what is most important is the issue of substance," a Livni aide quoted her as saying.

Livni said Israel favored the establishment of a Palestinian state on land now occupied by Israel, but objected to demands for Palestinian refugees to return to former homes in what is now the Jewish state, a key issue in the negotiations.

Ousting Olmert

Meanwhile, Livni stepped up a campaign to oust Olmert, charging on Monday that their centrist Kadima party had lost its way under his leadership.

Livni, a favorite in public opinion polls to succeed Olmert, whose tenure has been threatened by a series of corruption probes, spoke at a rally in Occupied Jerusalem ahead of a party leadership vote scheduled for mid-September.

"The sense of hope that had been a part of the establishment of Kadima has been lost along the way," Livni said, according to a transcript of her remarks released by a spokesman on Monday.

The Kadima party was founded by former Prime Minister Ariel Sharon in 2005 after an Israeli pullout from the Gaza Strip split his rightwing Likud party. Olmert took over in January 2006 when Sharon fell into a coma after a stroke.

Police investigations of Olmert have weakened his political authority. Accused of accepting cash-stuffed envelopes from a U.S. fundraiser and making duplicate claims for travel expenses, Olmert denies wrongdoing, but says he will resign if indicted.

Livni first called for Olmert to resign a year ago when a commission faulted his handling of the 2006 war with Lebanon's Hezbollah guerrillas.

If she defeats Olmert in the party vote, Livni, a former Mossad intelligence operative, could become Israel's first woman prime minister since the late Golda Meir in the early 1970's.

But she could face a tough challenge in any leadership contest from Shaul Mofaz, transport minister and former defense chief known for his tough tactics in crushing a Palestinian uprising that erupted after peace talks failed in 2000.

Olmert may be forced to resign if Kadima elects a new leader. That could trigger an early national election if his successor failed to forge a new coalition government. The next scheduled general election is in 2010.