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Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas held their second round of talks on Sunday evening in Jerusalem, Israel Radio reported.

During the meeting, the two leaders were set to discuss the developments emanating from the Mecca agreement which Fatah and Hamas signed, agreeing to form a national unity government in the Palestinian territories, said the report.

Olmert apparently addressed two main issues: the Qassam rockets fired at Israel by Palestinian militants and the weapons smuggling into Gaza through the Egyptian border.

On Saturday, chief Palestinian negotiator Saeb Erekat had announced that the principal talking points would include "reinforcing the truce between Israel and the Palestinians, closing the file of wanted Palestinians to Israel and freeing the tax revenues."

The first meeting was held on February 19 when Abbas and Olmert met with US Secretary of State Condoleezza Rice but failed to revive the ailing Israeli-Palestinian peace process.

Earlier, Olmert had indicated future meetings with Abbas might be held in the Palestinian territories.

Meanwhile, Abbas renewed his commitment to free captured Israeli soldier Gilad Shalit, Israeli TV Channel 10 reported.

According to Abbas, Shalit, held Palestinian militant groups since last June, would be released ahead of the Palestinian unity government being formed later"this week".

Olmert, seemingly breaching new diplomatic ground, said he would be prepared to broker a "creative solution" to solve the Palestinian refugees issue, revealed Channel 10.

However, Shalit's Palestinian captors sought to pour cold water on the whole affair on Sunday, claiming he would not be released until Israel acceded to their demands.

"If the enemy (Israel) complied with the conditions outlined by the factions that captured Gilad Shalit in Gaza, then he will be released," said Abu Mujahed, spokesman for the Popular Resistance Committees (PRC), one of the three groups which hold the soldier prisoner. "Without answering our fair demands, nothing can happen."

On June 25, Hamas, the PRC and the Islamic Army captured Shalit during a cross-border raid, absconding him into Gaza where he has been held since then.

For his release, the captors call on Israel to release all women, children and people in ill-health from the 10,000 Palestinians it holds.

(Xinhua News Agency March 12, 2007)