Israeli Prime Minister Ehud Olmert and Palestinian president Mahmud Abbas, faced with heightened foreign diplomatic overtures, have started to talk of peace despite the huge gaps between them and political difficulties at home.

In the first such public comments from a top member of the current Israeli government, Deputy Prime Minister Haim Ramon backed a withdrawal from most of the occupied territory as part of a peace agreement with the Palestinians.

It was in Israel's interest to "leave the majority of the territory of Judea and Samaria while maintaining the large settlement blocs," Ramon told public radio in an interview on Friday.

"We should not insist on keeping territories when their continued occupation threatens our national existence and harms our position in the world," said Ramon, one of Olmert's closest colleagues.

Olmert's centrist Kadima party was elected in 2006 on a ticket of withdrawing from most of the West Bank while effectively annexing the largest Jewish settlements, but the project was shelved after the Lebanon war.

"The whole idea of unilateralism was based on the fact that we had no partner and now we have a partner," said Ramon, referring to Western-backed Palestinian president Mahmud Abbas and prime minister Salam Fayyad.

Israel withdrew unilaterally from the Gaza Strip in September 2005, as it did from southern Lebanon in 2000 -- decisions many Israelis now regard as flawed given the subsequent flare up of conflicts with both territories.

Ramon was speaking amid recent diplomatic overtures designed to revitalise peace talks that have been defunct for the past seven years and to bolster Abbas since Hamas -- considered terrorists by Israel -- seized control of Gaza.

In extracts from an Israeli newspaper interview published in full on Friday, Abbas said US President George W. Bush is looking to reach a final status Israeli-Palestinian agreement in the coming year before he leaves office.