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On the same day he welcomed Arab efforts to re-launch a 2002 peace offer, Israeli Prime Minister Ehud Olmert condemned Palestinian Premier Ismail Haniya as a "terrorist".

Olmert made the remarks in an interview with the US newsmagazine Time.

He charged that Haniya had "just lately ... transferred over a million dollars for a group of terrorists to carry out terrorist actions against Israeli citizens.

"He's a terrorist," Olmert was quoted as saying. "You have a terrorist who is prime minister of the Palestinian authority now."

Earlier Friday, in a series of interviews, Olmert welcomed the re-launched Arab offer promising wide regional recognition of Israel in return for a full withdrawal from the occupied territories as a "revolutionary change".

He said he was willing to talk to Saudi Arabia and other "moderate" Arab states to discuss the peace initiative, which had initially been rejected by Israel when first adopted at the 2002 Arab League summit in Beirut.

Olmert added he would be happy to attend a regional conference.

But he rejected out of hand a clause in the initiative, which calls for a "just solution" to the Palestinian refugee problem based on UN General Assembly resolution 1948.

The December 1948 resolution says Israel should allow Palestinians to return to the homes they fled in the war that followed its creation and pay compensation to those who choose not to.

In the Time interview, Olmert said he was "not unhappy" that the Palestinians had found a "way not to shoot at each other" in a Saudi-brokered deal that brought about a unity government and bridged differences between Fatah and Hamas.

Germany, which currently holds the rotating presidency of the EU, meanwhile welcomed the outcome of the Riyadh summit as "a positive signal".

US Secretary of State Condoleezza Rice and UN Secretary General Ban Ki-moon too had repeatedly said during visits to the region that they hope the initiative would help revive the long-stalled Middle East peace process.