Israeli Vice Premier Shimon Peres said he was encouraged by the election of Palestinian leader Mahmoud Abbas in "a convincing democratic way," and welcomed a fresh approach to the Middle East conflict by Abbas and Israeli Prime Minister Ariel Sharon.

"I feel that we are again approaching a new age," Peres said in a panel discussion between Israeli and Palestinian leaders.

He said he was encouraged by the election of Abbas in "a convincing democratic way."

But, he said, "what surprised me is the implementation" of changes to foster peace talks.

"In a few days he changed the whole atmosphere in the Middle East," Peres said. "All of a sudden there is a meeting of minds and moods."

He also praised Sharon, even though he noted the sharp differences in their politics, and that he had never voted for him.

"I´m pleasantly surprised by the actions taken by the two sides," Peres said.

He noted he had attended 10 previous annual meetings in Davos, high in the Swiss Alps, many of which were devoted to Israeli-Palestinian peace efforts.

"The magic has returned to the mountain," Peres said.

In 1994 he negotiated with the late Palestinian leader Yasser in round-the-clock talks that both sides hailed as inspired by the mountain, a reference to Thomas Mann´s novel, "The Magic Mountain," which is set in Davos.

Peres did not relate to the overwhelming victory of Hamas in local elections in Gaza.

Some Palestinians, Israelis more skeptical

Palestinian leaders called Friday for the resumption of negotiations with Israel, warning that the new spirit of cooperation will not endure due to the withdrawal from Gaza alone.

"We cannot be sub-contractors for unilateral Israeli moves," senior Palestinian official Yasser Abed Rabbo, addressing a special session of the World Economic Forum on the political process between Israel and the Palestinians.

"We need a comprehensive solution that will close all the gaps," said Abed Rabbo. "Side by side with the Gaza step, there should be a resumption of the final status negotiations."

But Foreign Minister Silvan Shalom told the forum the Palestinians must do more to dismantle the infrastructure of armed groups, otherwise fresh attacks could undermine any progress towards peace.

For his part, Abed Rabbo said the dream of a new partnership could be destroyed if Israel continues expanding West Bank settlements and building the West Bank separation fence.

"With what is currently going on on the ground, building the wall around the Palestinian populated areas and the expansion of the settlements, I´m afraid my dream will be lost," he said.

Vice Prime Minister Ehud Olmert offered to start immediate talks with the PA on handing over control of the Erez industrial zone on the Israel-Gaza border, which he said could be the nucleus of an independent Gaza economy.

But Palestinian Finance Minister Salam Fayad cautioned: "Important though it is, economic development is no substitute for a credible, durable progress on the political track." The AP contributed to this report. (© 2001-2005 Koret Communications Ltd. 01/28/05)