Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas on Sunday agreed that the two sides still aim to reach a peace deal within 2008, local daily Ha'aretz reported.

The two leaders met in the early afternoon in Jerusalem for the second time since probes-plagued Olmert announced on July 30 that he would not contend in the upcoming primary of his ruling Kadima party and would resign upon the election of his successor.

Pledge to continue talks for peace deal within 2008

During the meeting, the pair pledged to continue the negotiations for a peace pact by the end of this year, as they promised at a U.S.-hosted peace conference at Annapolis last November when they resumed the long-stalled peace talks, according to the report.

Admitting that considerable gaps still remain between the two sides, Israeli government spokesman Mark Regev said after the meeting that significant progress has been made in the talks, but he did not elaborate.

Prior to the summit, which is likely to be their final gathering before the Kadima party elections on Sept. 17, Ha'aretz reported that Olmert would seek to convince the Palestinian leader to accept an agreement of principles which would represent a framework for a two-state solution.

Central in Olmert's proposal is that a five-year timetable be set out for the two sides to complete a settlement on the final status of Jerusalem under an international umbrella, which means to delay the substantive talks on the subject to the future, said the report.

However, local news service Ynet reported that Israeli sources in Olmert's office categorically denied that the premier bid for an interim agreement in the meeting. A senior official was quoted as saying that the only thing discussed was "a full agreement by the end of 2008."

Despite lowering expectations for the Annapolis pledge, U.S. Secretary of State Condoleezza Rice also said last week during her seventh visit to the hot spot since the Annapolis conference that progress is being made, and that the sides still "have a good chance of" striking a peace deal within the year.