HIGHLIGHTS: Officials in Egypt, Israel & the U.S. Seek Compromise over Arafat's Role in Mideast Peace Making||'Arabs Feel Palestinian Crisis Over-spilling its Boundries', Says Israeli Official||Palestinians Receive Assurances From Mubarak over Arafat's Role in the Mideast Peace Process, Says Ereqat|| STORY: Israel pressed its campaign to take Yasser Arafat out of the Middle East peace equation and said it had won Egypt's agreement to find an "acceptable" partner for negotiations. (Read photo caption)

Israeli Defence Minister Binyamin Ben Eliezer said after talks with Egyptian President Hosni Mubarak in Alexandria that both countries had agreed to "outflank" differences over the Palestinian leader's role to try to kick-start stalled peace talks.

Mubarak, for his part, said that Egypt "was not in agreement" with the Israeli refusal to deal with Arafat, "but we can try to find a way, without harming Arafat, that would help (restart) negotiations."

The two men met on the eve of talks in New York among representatives of the United States, European Union, Russia and United Nations -- the so-called "quartet" seeking to end the Middle East impasse.

The United States, which has run into stiff European and Arab opposition to its call for Arafat's ouster, sought to avoid snagging Tuesday's talks on the issue of the Palestinian leader's future.

"It won't be easy, but we think that if we can minimize the debate over Arafat the person and look to the broader question of (Palestinian) reform, we can really make some progress," a US official told AFP in Washington.

Eliezer said the Israeli-Palestinian conflict was "almost out of control", but added that Israel would "help" and "support" the Palestinians if they made an effort to reduce the violence in the region.

"The fact this visit is taking place at this time is an extraordinary success," said an official accompanying Ben Eliezer, adding it could lay the groundwork for "a more advanced diplomatic effort."

"Mubarak has to get a move on. Israel can fight Palestinian terrorism but cannot change the Palestinian leadership. That can only be a pan-Arab decision," another Israeli official told reporters on the plane after the meeting.

"The feeling in Egypt is that the Palestinian crisis is over-spilling its boundaries and this is liable to upset the already precarious domestic and regional situation," he said.

Mubarak, whose country has been a major peace-broker in the conflict since it became the first Arab state to sign a peace accord with Israel in 1979, also met with a Palestinian delegation following his talks with Ben Eliezer.

The Egyptian president gave top Palestinian negotiator Saeb Erakat a message for Arafat, but did not reveal its contents, a Palestinian official was quoted by the Egyptian agency MENA as saying.

Although Egypt and Israel appeared to have moved closer to consensus in Alexandria, the question of Arafat's role still loomed large in the latest round of diplomacy.

Arafat, seeking to restore international confidence in his leadership after US President George W. Bush called for his replacement as a condition for US support for a Palestinian state, accused the Israelis of waging a "military, media and political campaign" against him.

The almost 22-month-old Palestinian intifada experienced a rare day of relative calm Monday as the Israeli military maintained its three-week stranglehold on seven of the eight main towns in the West Bank.

However, Sharon kept up his war of words against Arafat and his administration.

An Israeli official said Sharon had sent letters to members of the quartet accusing Palestinian officials of using part of 10 million euros (dollars) a month in EU aid to fund terrorism and pocketing the rest.

Since June 2001, the EU has compensated the Palestinians for Israel's freeze on the payment of customs tax money. On June 19, the European parliament approved a delayed payment of 18.7 million euros (dollars).

PHOTO CAPTION

Egyptian President Hosni Mubarak gestures as he shakes hands with Israeli Defense Minister Binyamin Ben-Eliezer (L) as they meet in Alexandria July 15, 2002 for talks focused on bilateral relations and the Israeli-Palestinian conflict. Mubarak said that use of force will not solve the conflict with the Palestinians and voiced opposition to sidelining Yasser Arafat. REUTERS/Gil Cohen Magen
- Jul 15 10:06 AM ET