Berlin - German Foreign Minister Frank-Walter Steinmeier expressed optimism Tuesday that a peace deal could be struck between Israeli and Palestinian leaders, although he warned against overoptimism.

"The preconditions for a peaceful solution are today better than they have been in the past 10 years," Steinmeier said told participants in the ninth European-Israeli Dialogue in Berlin.

There was no alternative to the aim of a two-state solution to the 60-year conflict, he said, stressing that Europe could play only a facilitating role.

Since the conference called by US President George W Bush in Annapolis, Maryland, in November last year, the Israeli government and the government of Palestinian President Mahmoud Abbas have been engaged in talks aimed at creating a framework for the Palestinians to establish a state on the West Bank and the Gaza Strip.

Following his trip two weeks ago to the region, Steinmeier referred to remarks by Abbas that 80 per cent of the outstanding issues between the two sides had been cleared up. The Annapolis process aims for a solution by the end of the year.

Issues yet to be resolved include the status of East Jerusalem, which the Palestinians want as their capital, and the right of Arab refugees from successive conflicts to return to their previous homes within Israel. Israel opposes both.

"There are no grounds for euphoria," Steinmeier said, pointing to a half-century of effort to resolve the Middle East conflict. "But equally, there are no grounds for resignation."

The German foreign minister stressed the need for Palestinians to provide their own security.

"More security for Palestinians means more security for Israel. And both are achievable," he said.

Germany is hosting an international conference on boosting the Palestinian police and security forces next week, with representatives from more than 40 countries expected. (dpa)