Israel has signaled that it is ready to resume formal peace talks with the Palestinians. But as Robert Berger reports from VOA's Jerusalem bureau, a Palestinian rocket attack is overshadowing progress on the diplomatic front.

Prime Minister Ehud Olmert told his Cabinet that the aim of the upcoming international peace conference in the United States is to launch direct negotiations with the Palestinians.

Mr. Olmert said the purpose of the talks would be to be to resolve the Middle East conflict by creating two states, Israel and Palestine, for two peoples.

It would be the first formal peace talks since negotiations collapsed in a wave of violence more than six years ago.

Mr. Olmert described western-backed Palestinian President Mahmoud Abbas as a peace partner. He said Israel needs to move forward with Palestinian moderates after the Islamic militant group Hamas seized control of the Gaza Strip in June. Hamas routed the Fatah forces led by Mr. Abbas, who now heads the Palestinian Authority in the West Bank.

Mr. Olmert said the talks would be based on the internationally-backed "Roadmap" peace plan. The Roadmap calls for the Palestinians to dismantle terrorist groups and Israel to halt settlement activity, but neither side has carried out its commitments.

While Mr. Olmert discussed the peace process with the Cabinet, Palestinians in Gaza fired a Russian-made Katyusha rocket into Israel, showing that militants have improved their weapons capabilities. The Katyusha has a longer range than homemade Palestinian rockets and is capable of hitting the major Israeli city of Ashkelon. The army says Palestinians have smuggled tons of weapons into Gaza from Egypt since Israel pulled out of the territory two years ago.

Israeli opposition leaders said the rocket attack is a warning to Mr. Olmert not to make a land-for-peace deal with Mr. Abbas. They said if Mr. Olmert carries out his plan to relinquish large parts of the West Bank, Jerusalem and Tel Aviv will be within range of Palestinian rockets.