Powell made the proposal on Monday evening with foreign ministers Ahmed Maher of Egypt, Marwan Moasher of Jordan, Sheikh Mohammed bin Mubarak al-Khalifa of Bahrain, Saud al-Faisal of Saudi Arabia and the Palestinian Nabil Shaath, they said.

The US secretary was "satisfied the Arabs had accepted the roadmap (for Palestinian-Israeli peace) but believed that concrete measures were needed such as encouraging normalization with Israel," a participant told AFP on condition he not be named.

Powell said an accelerated normalization could "encourage the Israeli government to move forward on the peace process," the source said.

The source said that among the participants, only Egypt, Jordan and the Palestinians had signed peace deals with Israel and that "the United States wanted more than that."

Prince Saud and others replied they supported comprehensive rather than separate Arab moves to normalize relations with Israel in exchange for the Jewish state's handing back occupied territories and its recognition of a Palestinian state, participants in the meeting said.

Such a proposal was enshrined in the Saudi-sponsored Arab League peace plan approved at the Arab summit in Beirut in March last year.

A source close to an Arab delegation said that Arab leaders taking part in the summit in Sharm el-Sheikh Tuesday with US President George W. Bush had "agreed to a purification of the atmosphere between Israel and the Arab countries," but that the Jewish state should "clearly recognize a Palestinian state."

Even if the final summit statement here is not binding, "Arab countries fear it may be exploited later by Israel to show they failed to live up to their promises and that it will be used as a means of pressure to wring concessions from these countries," a participant said.

The meeting broke up without agreement and the ministers decided they would refer the matter to their leaders, participants said.

Powell then stayed with Prince Saud until 3:30 am (0030 GMT) to try to reach agreement, they added.

Meanwhile, Israeli and Palestinian leaders prepared to formally commit themselves to a US-brokered peace process at a summit here Wednesday marking President George W. Bush's personal entry into the Middle East minefield.

Israeli Prime Minister Ariel Sharon and his Palestinian counterpart Mahmud Abbas were expected to deliver their pledges after talks with Bush likely to be long on expressions of good faith but short on specifics.

They readied separate statements signing on to an internationally drafted "roadmap" that lays out a series of confidence-building measures leading to creation of a Palestinian state, sources close to the summit said.

The statements and a text from Bush as well as host King Abdullah of Jordan would endorse the US "vision" for an overall Middle East peace and include measures to reduce tensions in the conflict that has cost some 2,700 lives since September 2000, the sources said.

Abbas was expected to speak of a temporary "truce" in the suicide bombings by radical Islamic groups, the sources said, while stopping short of an outright ceasefire as stipulated in the road map.

The Israelis were likely to announce measures to ease restrictions on Palestinians in occupied territories and agree to hand over control of security to Abbas' government in selected areas.

On the eve of the summit, Israel already made a conciliatory gesture, announcing the release of about 100 Palestinian prisoners held under administrative detention in military camps.

But significant differences in language, tone and substance remained as the parties geared for the first major Middle East summit since they came close to an accord in 2000 in the waning days of Bill Clinton's administration.

The sources here said the Israelis wanted to set a three-year deadline for creation of a Palestinian state, moving it effectively back to 2006, while the Palestinians want to keep the date of 2005 written into the text.

Israel is also balking at a specific mention of returning land seized by the Israelis in 1967 and linking an agreement with the Palestinians to efforts to resolve its conflict with Syria and Lebanon.