JERUSALEM, Jan 8: Israeli and Palestinian leaders agreed on Tuesday, on the eve of a visit by President George W. Bush, to begin peace talks on the thorniest issues despite major differences over Jewish settlement construction near Jerusalem.

Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas, in a two-hour meeting in Jerusalem, authorised negotiations on all of the final-status issues, from setting statehood borders to deciding the fate of Jerusalem and Palestinian refugees, Israeli and Palestinian officials said.

Neither side gave a start-date, though Palestinian negotiator Saeb Erekat said the talks would begin immediately.

The Olmert-Abbas agreement was timed to smooth the way for Bush’s first presidential visit to Israel and the West Bank, starting on Wednesday.—Reuters