Syria and Lebanon insist on the right of return for Palestinian refugees

But Libyan leader Muammar Gaddafi has rejected it, calling it "cheap bargaining" and has threatened to quit the Arab League.

Syria and Lebanon have also indirectly criticised the plan, and called on Arabs to support the Palestinian uprising.

A BBC correspondent in the region says this does not bode well for the Saudi initiative.

Moves to find a solution to the conflict come amid a downward spiral of attacks and counter attacks by the Israel military and Palestinian factions.

Support from US

Crown Prince Abdullah's proposal would involve the recognition of the state of Israel by Arab nations in return for an Israeli withdrawal from lands occupied since the 1967 war.

Israeli Prime Minister Ariel Sharon has reportedly said that he wants to see more details of the plan but has repeatedly ruled out a return to the pre-1967 borders.

No formal decision about the proposal was made at Mr Sharon's weekly cabinet meeting on Sunday.

Crown Prince Abdullah wants Arab states to back his plan

The initiative has won support from the US, the United Nations, the European Union and the Palestinian Authority.

Senior Palestinian negotiator Saeb Erekat called it the best Arab peace plan since the 1991 Madrid peace conference, the official Jordanian news agency Petra reported.

Egypt and Jordan - the only two Arab countries that have peace treaties with Israel- also support the plan.

Mr Gaddafi initially said he would quit the Arab League in protest at the Saudi proposal.

But after holding urgent talks with the Libyan leader, Secretary-General of the Arab League Amr Moussa has insisted that Libya will take part.

Syrian caution

Syrian President, Bashar al-Assad, and his Lebanese counterpart, Emile Lahoud, did not comment on the Saudi proposal after holding talks in Beirut on Sunday.

But they reiterated their shared position that any settlement must include a full Israeli withdrawal from occupied Arab territories and the right of return for Palestinian refugees.

Mr Assad is to visit Saudi Arabia this week, Saudi media reported.

Palestinian leader Yasser Arafat has been kept under virtual house arrest in Ramallah by Israeli troops.

But one of his senior ministers, Nabil Shaath, said there was a "high" chance that he would attend the Beirut summit.

"My understanding is that if Arafat did not attend the summit, the (Saudi) peace initiative would not be discussed," he said.