Under pressure over an alleged nuclear programme, Syria is exploring a peace deal with Israel that could alter its links with Iran and with anti-U.S. groups such as Lebanon's Hezbollah and Palestinian Hamas Islamists.

Syria and Israel confirmed on Wednesday that they were conducting indirect talks mediated by Turkey - eight months after Israeli planes raided a target in eastern Syria.

Washington said last month that site was a nuclear reactor being built with North Korean expertise and stepped up its campaign to isolate the Baath Party government in Damascus.

Israel, which has made it clear that instability in Syria was not in its interest, kept quiet about the target. Syria denied the U.S. accusations, but the United Nations nuclear watchdog has pledged to investigate the bombed location.

"The Syrians hate to be on the wrong side of international law and now they are looking at the prospect of sanctions and international inspectors rummaging through the site with bulldozers," a European diplomat in the Syrian capital said.

"No one knows what they're talking to Israel about and no one expects a deal soon, but the talks present an opportunity for Syria to be rehabilitated internationally," he added.

Another diplomat said the talks could also help Syria fend off pressure over its role in Lebanon. A revived peace track with Israel might discourage the United States from pushing the scope of an international tribunal being set up to try suspects in the 2005 assassination of former premier Rafik al-Hariri.

The tribunal poses a big challenge to President Bashar al-Assad. An early U.N. report on the killing implicated relatives of Assad. Syria has denied any involvement.

OBSTACLES

Yet obstacles to a Syrian-Israeli deal remain formidable.

Syria expects no agreement to be signed while U.S. President George W. Bush, who does not disguise his hostility to Damascus, remains in office for the rest of this year. But it says it is committed to continuing the talks with Israel via Turkey.

Washington has voiced only tepid support for the Turkish effort. In Israel, many voters believe Prime Minister Ehud Olmert is using the talks to distract from domestic problems.

Internal Israeli politics played a role in the collapse of negotiations in 2000, when Syrian and Israeli negotiators reached an impasse over the extent of a proposed Israeli withdrawal from the Golan Heights occupied in the 1967 war.

In the past eight years, Israel has piled more demands on Syria, whose strategic position has weakened. Israeli Foreign Minister Tzipi Livni said on Thursday a deal would require Damascus to distance itself from "problematic ties" with Iran and cut links with Hezbollah and Hamas guerrillas.

Without referring to the Iran issue, Syria said Israel has guaranteed a full withdrawal from the Golan in return for peace, but officials hinted at ways to work around the Israeli demands.

They acknowledged that Syria's relationships with all its allies would be modified by peace with Israel, but one said Damascus could not simply drop its alliance with Iran, which has lasted since 1980 when Syria, virtually alone in the Arab world, sided with the Islamic Republic in its 8-year war with Iraq.

Signs of disagreements, however, have recently emerged between Tehran and Damascus. Iran said in February it would be involved in an investigation into the assassination of top Hezbollah commander Imad Moughniyah, who was killed in the Syrian capital. Syria dismissed the Iranian statement.

Diplomats said Syria had helped to restrain Hezbollah after it vowed to retaliate against Israel, accusing it of killing Moughniyah. Foreign Minister Walid al-Moualem recently said in Tehran it was in Syria's interest to seek peace with Israel.

Paul Salem, director of the Carnegie Endowment's Middle East programme, said it could be also in the interest of the United States to support a Syrian-Israeli peace deal more strongly.

"The development on the Syrian-Israeli front, while flying in the face of Bush policy, might actually end up bringing Syria further away from Iran and closer to U.S. allies in the region and be a U.S. gain in the long term," Salem said.

"The question is how much substance there is to the negotiations," he added.

An Arab politician recently in Tehran and Damascus said the peace scenario might be too rosy, stressing the close security ties underpinning Syria's relationship with Iran.

"A war atmosphere is also good for Assad to establish himself further in the region," the politician said. "Don't underestimate the degree of cooperation between Syria and Iran."