Israeli and Palestinian leaders met in Jerusalem Friday for talks that focused on the creation of a Palestinian state and new Israeli sanctions on the Gaza Strip. Robert Berger has this report from Jerusalem.

Prime Minister Ehud Olmert hosted Palestinian President Mahmoud Abbas for about two hours at his official residence in Jerusalem. It was the latest in a series of summit meetings aimed at hammering out a declaration on Palestinian statehood. They hope to present the document at an international peace conference in the United States planned for later this year.

"The focus is, as we move forward toward this international meeting towards the end of the year, is how best can we all strengthen the process of historic reconciliation between Israelis and Palestinians, said Israeli government spokesman Mark Regev.

But the gaps are wide on the document on Palestinian statehood. With right-wing factions threatening to quit Israel's coalition government if he makes major concessions, Mr. Olmert prefers a vague declaration of principles. Mr. Abbas wants Israeli commitments on core issues such as the status of Jerusalem, Palestinian refugees and final borders.

Palestinian negotiator Yasser Abed Rabbo believes an agreement can be reached in time for the conference.

Abed Rabbo told Israel Radio that there are serious differences, but negotiators are working hard to resolve them.

The meeting was overshadowed by an Israeli decision to impose limited electricity cuts in the Gaza Strip in response to Palestinian rocket attacks. Gaza is ruled by the Islamic militant group Hamas, which defeated Mr. Abbas's Fatah forces in a Palestinian civil war in June.

Palestinian officials condemned the Israeli decision, describing it as collective punishment. But Prime Minister Olmert promised President Abbas that Israel would not cause a humanitarian crisis in Gaza.