Speaking at a memorial service for the first prime minister of Israel, David Ben-Gurion, Olmert said, "I hereby declare that when Gilad Shalit is released and returned to his family, safe and sound, the Government of Israel will be willing to release numerous Palestinian prisoners – including ones who were sentenced to lengthy prison terms – in order to increase the trust between us and prove that our hand is truly extended in genuine peace."

Shalit was kidnapped by Hamas operatives in a cross-border raid from Gaza in June. Olmert left open whether he would free Palestinian Authority terrorists “with blood on their hands” as part of a prisoner swap deal.

In his speech, Olmert called on PA leaders to “open a new page” and come back to the negotiating table for peace talks with Israel. “You must stop terror and recognize our right to live in peace, and you must give up the demand for the ‘right of return,’” he said in remarks aimed directly at the PA government.

The “right of return” refers to the Arab claim that millions of Arabs now living in other countries and whose ancestors lived in Israel prior to the re-establishment of the Jewish state, must be allowed to “return” to live in Israel. The issue has been a major point of contention in peace negotiations between the PA and Israel.

Olmert said that the Gaza-based "terror, violence, murders and incessant attacks against the citizens of Israel are liable to lead us closer to a new and painful wave of terrible violence. The uncompromising radicalism of your terror organizations – the Hamas, Jihad, the El-Aksa Martyrs' Brigade and other organizations – did not bring you closer to attaining the goal which I am convinced many of you share: the establishment of a Palestinian state, which will guarantee you a future of prosperity and which will exist in good neighborly relations side-by-side with the State of Israel."

He therefore said he now "proposes a different path." He suggested that if "a new Palestinian government is established – a government which will be committed to the principles of the Quartet, implement the Roadmap and bring about the release of Gilad Shalit, I will invite Abu-Mazen to meet with me immediately, in order to conduct a real, open, genuine and serious dialogue between us."

The prime minister also said that Israel would be willing to surrender parts of Judea and Samaria in return for peace. He promised a Palestinian state "with territorial contiguity in Judea and Samaria," and borders that will be defined "in accordance with President Bush's April 14th, 2004 letter to Prime Minister Ariel Sharon - borders that will be different from the territories currently under Israel's control."

Responding to the speech, Saeb Erekat, senior aide to PA Chairman Mahmoud Abbas, said he would relay Prime Minister’s call for renewed negotiations to Abbas.

Abbas said at a recent Arab conference that the “right of return” is a condition for establishing a new PA state in Judea, Samaria and Gaza.

Erekat, who has been a top negotiator for the PA in the past, said he held Israel responsible for cutting off prior peace talks.