Cairo  - Israel's new government will continue negotiations with the Palestinian government and believes that reaching a peace agreement before the end the year is possible, Israeli President Shimon Peres said on Thursday.

"We hope to see an independent Palestinian state to live side by side with Israel in peace and security," said Peres in a press conference during an Israeli-Egyptian summit in the Egyptian Red Sea city of Sharm el-Sheikh.

Peres said the chances of reaching a peace agreement with the Palestinian government were high, without giving specifics.

"Peace was not as likely to happen in the past as it is likely to happen now," he said, adding that differences with the Palestinian side had shrunk.

Peres said he hoped for the release of the captured Israeli soldier Gilad Shalit, kidnapped by Hamas-linked militants in June 2006 but did not give details on any negotiations.

Egypt has been mediating between Israel and the Islamist group Hamas, which captured Shalit, towards a prisoner exchange but negotiations had broken down.

Israel refuses to negotiate with Hamas, which calls for the destruction of the Jewish state.

At a US sponsored meeting in Annapolis, Israel and Palestine agreed in the United States to seek a peace agreement before the end of 2008, although many Palestinians and European diplomats have since cast doubt on whether that goal was achievable. (dpa)