Israeli Prime Minister Ehud Olmert said on Monday he was ready to free about 250 Palestinian prisoners as a goodwill gesture to help President Mahmoud Abbas and his Fatah faction.

The two leaders held talks in the Egyptian Red Sea resort of Sharm el-Sheikh, their first meeting since Islamist Hamas militants seized the Gaza Strip nearly two weeks ago and left Abbas and his secular forces holding the larger West Bank.

Olmert told a joint news conference with Palestinian, Egyptian and Jordanian leaders he would work with "moderates" like Abbas against "terrorists" -- a clear reference to Hamas militants -- to secure peace in the Middle East.

"I look to ... Prime Minister Olmert to start serious political negotiations, according to an agreed timeframe, with the aim of setting up an independent Palestinian state. My hand is stretched out to the Israeli people," said Abbas.

Olmert said he was willing to resume a U.S.-sponsored program of two-weekly talks to push forward with efforts to found a Palestinian state, despite Hamas's control of Gaza.

"I'm optimistic that, especially in these turbulent days ... an opportunity has been created to seriously move forward with the regional peace process. I don't plan to let this opportunity slip away," said Olmert.

"As a gesture of goodwill towards the Palestinians, I today announced my intention to release (about) 250 prisoners who are members of Fatah who do not have blood on their hands, with their commitment not to involve themselves again in terror."

Olmert said Israel would make good on pledges, issued after Abbas ditched Hamas, to end economic sanctions and hand over hundreds of millions of dollars in Palestinian tax revenues as well as to ease travel restrictions in the occupied West Bank.