|PIC1|Palestinian President Mahmoud Abbas said the most serious peace talks in seven years would begin on Monday and the final deal must address all the sensitive issues including Jerusalem.

Abbas said his chief negotiator, former Prime Minister Ahmed Qurei, would meet his Israeli counterpart, Foreign Minister Tzipi Livni, as part of U.S. President George W. Bush's push for a statehood agreement before leaving office.

"All the issues will be discussed ... We told Bush that we will not accept delaying any of the final-status issues," Abbas said in a speech, referring to state borders, the future of Jerusalem and Palestinian refugees, and Jewish settlements in the occupied West Bank.

"Without all of these issues we will not be concluding a final deal," Abbas said in the West Bank city of Ramallah.

The meeting will be held in Jerusalem, four days after Bush's visit to Israel and the West Bank in which he set the goal of reaching a peace treaty before he leaves office in January 2009.

On the eve of Bush's visit, Abbas and Israeli Prime Minister Ehud Olmert authorised talks on all the final-status issues.

But it is unclear whether Olmert is ready to push ahead with substantive talks on the sensitive issue of Jerusalem since doing so could prompt coalition partners, including the right-wing Yisrael Beiteinu party, to quit the government.

Israeli Foreign Ministry spokesman Aryeh Mekel confirmed the talks would be held in Jerusalem but declined to say what issues would be discussed.

Israel and the Palestinians are at odds over the form of agreement they want to reach.

Israeli officials have said they are seeking a deal that would outline a "framework" for a future Palestinian state with implementation delayed until the Palestinians can ensure Israel's security.

Abbas wants a final peace treaty to enable him to declare a Palestinian state by the end of 2008.

GETTING TALKS GOING

The first final-status talks in seven years were supposed to begin soon after a U.S.-sponsored peace conference in Annapolis, Maryland, in November. But the Palestinians demanded Israel first commit itself to ceasing all settlement activity, as called for under the long-stalled "road map" peace plan.

Under U.S. pressure, Olmert responded with a de facto halt to new construction in settlements in the West Bank, but he has not called off plans to build hundreds of new homes in an area near Jerusalem known to Israelis as Har Homa and to Palestinians as Jabal Abu Ghneim.

That it took nearly seven weeks for Livni and Qurie to begin substantive talks underscored the hurdles facing Bush in getting the two sides to settle their differences in the 12 months he has left in office.

It is unclear how Olmert and Abbas can reach a deal. Abbas wields little power beyond the West Bank because Hamas Islamists seized control of the Gaza Strip in June.

Olmert, weakened by the 2006 Lebanon war, could face new calls to resign at the end of the month when a commission of inquiry issues its final report on the conflict.

A senior U.S. official, who declined to be named, said on Saturday that it would be difficult to implement any final peace deal which Abbas and Olmert agreed if Hamas retained control of the Gaza Strip.

"I don't think in the long term the agreement is going to work if Hamas continues to control Gaza. We have repeatedly said the Palestinian Authority must resume its responsibility for Gaza as well, exactly how this is going to happen, I can't predict," the senior official said.

Abbas has proposed early presidential and parliamentary elections as a possible way to end the crisis with Hamas. Hamas has rejected the idea.

Hamas spokesman Sami Abu Zuhri said early elections would be illegal as they would "violate Palestinian law."