Olmert, who earlier this month said Israel and the Palestinians had never been so close to an agreement, has been talking up peace prospects as he clings to office in the face of a police investigation that could force him to step down.

Officials said Olmert envisages agreeing a joint document with Palestinian President Mahmoud Abbas that sets out borders for a future Palestinian state, security arrangements and addresses the fate of millions of Palestinian refugees, but leaves out the even more contentious issue of Jerusalem.

"I don't believe that it's possible to reach an agreement on Jerusalem before the end of the year. But on the other core issues, the gaps are not dramatic," an official, speaking on condition of anonymity, quoted Olmert as telling an Israeli parliamentary committee.

In lieu of a deal on Jerusalem, the official said, Olmert proposed a joint Israeli-Palestinian "mechanism" to continue negotiations on the future of the Holy City into 2009.

U.S. Secretary of State Condoleezza Rice will host a three-way meeting with Israeli and Palestinian negotiating teams in Washington later this week.

Olmert and Abbas launched U.S.-sponsored peace talks last November with the goal of reaching an agreement before U.S. President George W. Bush leaves office in January.

But the negotiations have been bogged down by disputes, mainly over Jewish settlement building in and around Jerusalem.

Abbas has been pushing for a full-fledged peace accord that leaves out none of the final-status issues.

Palestinian officials had no immediate comment on Olmert's remarks.