By Glenn Kessler
Washington Post Staff Writer
Monday, March 26, 2007 6:54 PM

JERUSALEM, March 26 -- Arab foreign ministers agreed to relaunch a five-year-old peace initiative with Israel, including setting up a working group to begin negotiations on the plan, according to reports from Riyadh, the Saudi capital.

"The initiative includes a mechanism to promote it and gain its acceptance and especially registering it officially at the United Nations," Saudi Foreign Minister Saud al-Faisal told reporters. "That's what's going to happen, so that it becomes a basis and a major reference point for peace in the Middle East."

Under the plan, Arab nations would recognize Israel if it gave up land occupied after the 1967 war and granted Palestinian refugees the right to return to their homes lost six decades ago when Israel declared it was a state.

Secretary of State Condoleezza Rice, traveling this week in the Middle East, has actively pushed Arabs to use the long-dormant plan as a basis for negotiations, not a take-it-or-leave it proposition.

Both U.S. and Israeli officials said they were pleased by the decision, which will be formalized later this week at a summit of the Arab League.

One official traveling with Rice called it "a very positive and welcome development," while an Israeli official said setting up the working group is "significant" and could be a potential breakthrough in the stalled peace process -- even more so than Rice's efforts to start a dialogue with Israelis and Palestinians on the contours of a Palestinian state.

For the past two days, Rice has shuttled between Israelis and Palestinians for two days -- and also flew to Jordan Monday -- trying to build agreement for a new initiative under which she would start "parallel" discussions with both sides.

But she postponed a news conference planned for Monday night until Tuesday morning amid signs that Israeli Prime Minister Ehud Olmert was balking at the scope of the issues Rice wanted to raise and also the "parallel" format. U.S. officials met late in the night with Israeli officials to bridge the gaps, which Israeli sources suggested included Olmert's refusal to put on the table some of the core issues of the conflict, such as borders, Jerusalem and the settlement of refugees.

A U.S. official, speaking on condition of anonymity, did not respond to questions about Olmert's concerns but said that Rice will announce that Olmert and Palestinian Authority President Mahmoud Abbas will meet on a regular basis, beginning discussions on confidence-building measures while "leaving the door open to discussion of all issues." He added that Rice will make "periodic visits" to the region where she will "raise all political horizon issues in parallel with both sides." Political horizon is Rice's code for sketching the contours of a Palestinian state.

Olmert, who has been noticeably cool to the notion of any new approach while Rice has been here, used almost the same language when he held a news conference Monday with U.N. Secretary-General Ban Ki-Moon.

"Whether this can be described as a new initiative, I frankly don't know," he said.

Olmert has also emphasized the role of President Bush at every turn, suggesting that Rice has no monopoly over U.S. policy. "I certainly appreciate the efforts of the secretary of state under the inspiration or guidance of the president, in order to advance the processes of dialogue," Olmert told reporters.

Rice has also touted Bush in her visit here, noting that the president expressed confidence in her efforts before she left and that has been deeply involved in her planning for the trip.

Correspondent Faiza Ambah contributed to this report from Jeddah, Saudi Arabia.