A senior U.S. official quoted by the Reuters news agency said on Wednesday the two nations have been holding high-level secret talks despite the oil kingdom’s refusal to recognize the Jewish State.

Despite denials by both countries, U.S. Ambassador to Israel Richard Jones said he felt it was important to publicize the contacts. “I don’t have any particular details on it, but the very fact that … first of all they would be able to communicate and that they would be willing to communicate with one another I think shows a very serious approach,” he said.

Jones commented that such contacts would be a logical response to the chaos that is engulfing the region. He said cautiously that perhaps Israel is taking a second look at a long-rejected Saudi peace plan proposed in 2002.

“I think they (the Israelis) recognize that Saudi Arabia’s policies have evolved in recent years and that Saudi Arabia is now more interested, and more on the side of peace,” he said. “The Israelis are warming to that.”

Defense Minister Amir Peretz said Sunday that the plan, which calls from Israel to surrender all of the land restored in the 1967 Six-Day War, could be the basis for an agreement with the Palestinian Authority (PA). Prime Minister Ehud Olmert made a similar statement last month.

In return, the Saudi plan offers recognition of the State of Israel by Arab countries.

Kadima Cabinet Minister Meir Sheetrit said in October that he too is in favor of holding discussions on the plan.

Olmert, Peretz and Sheetrit were all clear that Israel will not surrender heavily populated areas, such as the Jerusalem suburbs of Neve Ya’akov and Ma’aleh Adumim.

The U.S. Ambassador was not specific about the content of the meeting held in September between the two leaders. “There is definitely something going on there,” he said, “but beyond the one contact that was in the press I am not privy to [it].”

According to various media reports, the contacts between the two Middle Eastern nations began soon after Israel’s second Lebanon War this summer.

The Prime Minister praised Saudi initiatives focused on a regional peace plan and Iran’s nuclear development program, saying he admired King Abdullah “wisdom and sense of responsibility.” He added praise for Saudi efforts in the region, “both those made publicly and others as well,” in a September interview with the daily Yediot Aharonot.

When questioned more specifically on whether Olmert had met with senior Saudi officials, however, he answered cryptically, “I don’t have to answer every question.”

The Saudis immediately denied meeting with Israeli officials. The state-owned Saudi Press Agency (SPA) quoted a Foreign Ministry statement which said, “The news story circulated by Israeli and Qatari media recently over contacts between Saudi and Israeli officials is utterly false.”

The Qatari-based region-wide Al-Jazeera television news network also reported that Israel and Saudi officials had met.

Saudi Arabia and U.S. defense officials met recently for the most comprehensive talks in years. The discussion centered on the growing threat from Iran's rapidly developing offensive power, according to the Mideast Newsline. The strategists concluded that the U.S. will maintain a long-term presence in the Gulf and will cooperate with the six-member Gulf Cooperation Council.

Concerns about the increasing threat from the international al-Qaeda terrorist organization, which has renewed its threats to strike the U.S. were also discussed during a visit in November by a senior Saudi official with Vice President Richard Cheney.

This week Saudi officials launched a campaign geared to teach children the dangers of terrorism. The education department in the country's Makkah region is trying to combat the culture of terrorism that tries to engage young children in terrorist activities. Officials said the program is part of the country's overall campaign to keep out terrorism. "We are in a terrible need for such a campaign to safeguard our children from following the road of fanatics," said an official from King Abdul Aziz University.