CAIRO, Dec 7: Key players in the search for Middle East peace have reached understanding on a plan that could lead to a comprehensive settlement, Egypt's state news agency MENA said on Tuesday, quoting senior Egyptian sources.

"An important understanding, that could constitute an agreement in principle, has been reached by Egypt, Israel, the Palestinians and the significant international parties - the United States and the European Union - on a comprehensive solution to the Israeli-Palestinian conflict," MENA said.

But an Israeli official termed the Egyptian announcement premature, but said Tel Aviv would respond positively if militants ceased attacks. "There are a few correct elements but it's a little premature to say there's an agreement," a senior official in Prime Minister Ariel Sharon's office said. "We will respond positively if on the other side there will be arrangements for a ceasefire, a cessation of hostilities."

International efforts to advance towards a final Middle East deal after years of bloody conflict have been revitalized following the death last month of veteran Palestinian leader Yasser Arafat.

The officials expect that "preparations (for a plan of action) would take place until July, after which political action will begin," MENA said. That, in turn, could lead to an "important political conference in Washington".

It said the conference would be attended by the parties concerned with the peace process, notably the Israelis and the Palestinians, as well as Egypt, the United States, Russia and several European countries.

The news agency said the "framework for the plan has effectively been established ... and discussions are underway to agree clearly on the points to be included".

Expected to be included is a "bilateral cease fire", under which the Palestinian Authority would "put a stop to anti-Israeli attacks and consolidate its control over the situation in the Gaza Strip and the West Bank".

In that context, MENA said, Israeli Prime Minister Ariel Sharon is committed to a "halt to Israeli military operations against the Palestinians insofar as they continue to respect their commitment (to a cease fire) and control their territory".

The agency added that Mr Sharon had declined to put this in writing, saying it was "not necessary, at the outset, to sign a cease fire accord until the Palestinian Authority's security and administrative capabilities could be rebuilt". Egypt's role in Israeli Prime Minister Ariel Sharon's disengagement plan was also included within the scope of the measures, the official said.

In another sign of warming relations between Egypt and Israel, MENA quoted "high-level sources" as saying Cairo could soon return an ambassador to the Jewish state. "The new spirit in Israeli-Egyptian relations opens the way to a return of the Egyptian ambassador to Tel Aviv," the agency said. -AFP