We don't have any intention whatsoever, neither to ground attack or to attack Arafat. Arafat in our eyes is the representative of the Palestinians

Shimon Peres

But he said that Israel would not "negotiate under fire", and that first hostilities and what he described as incitement had to cease.

"Now we have to keep the credibility," he said. "We cannot... agree to something and say the next day it is impossible."

Mr Arafat was reported to have left the talks without making any statement.

BBC Cairo correspondent Heba Saleh says that the two sides appeared to be as far apart as ever, with expectations of a breakthrough never high.

Mr Peres and Mr Arafat, who shared the Nobel Peace Prize in 1994, initially travelled to the Egyptian capital for separate talks with Egyptian President Hosni Mubarak.

The two leaders last met at a Lisbon conference in June.

Conciliatory tone

Mr Peres told Mr Mubarak earlier that making war on Palestinians was not an option, following press reports that the Israeli army was planning a large-scale military operation against the Palestinian Authority.

Mr Peres's visit to Egypt is the first by an Israeli official since the Arab League decided in May to suspend all political contact between its members and the Jewish state.

Israeli fire destroyed a Palestinian police post

Mr Peres will have heard from Mr Mubarak warnings about what Egypt regards as provocative Israeli practices, including the assassination of Palestinians activists, and the blockade and the destruction of Palestinian homes, correspondents say.

Egyptian officials have been making it clear they fear the situation in the Middle East could explode and lead to a regional war, correspondents say.

In the past week, there have been suicide bombings from the Palestinians, targeted killings by the Israelis, shootings of both Jewish settlers and of Palestinian civilians, bulldozing of houses and incursions by Israeli tanks inside Palestinian territories.

Israel has promised to answer every Palestinian attack with swift and harsh retaliation.

No international observers

The Mitchell report called for an end to violence in the region, a crackdown on Palestinian militants by the Palestinian Authority and a freeze on building in Jewish settlements in the West Bank and Gaza Strip.

But Mr Peres expressed doubt about the Mitchell report's recommendation that international observers be deployed.

He said he did not believe radical Palestinian groups such as Hamas would allow their activities to be monitored, and that the international media attention Israel already receives would serve the same purpose.

Since the Washington-brokered ceasefire was agreed a month ago, more than 20 Palestinians and 12 Israelis have been killed in continued fighting.