"There will be other crises in the talks with the government of Abu Mazen (Palestinian prime minister Mahmud Abbas' nom de guerre) but the negotiations will continue," he said in an interview published in the Yediot Aharonot daily Thursday.

"There is reason to think that we are making progress," added Mofaz, who is considered a hawk in Ariel Sharon's government.

Mofaz was due to hold talks Thursday with Palestinian security chief Mohammed Dahlan.

But according to military radio the meeting could be postponed at the request of the Palestinians as a result of the splits within their leader Yasser Arafat's Fatah movement which led to Abbas calling off a meeting with Sharon on Wednesday.

Abbas also offered to resign from Fatah's central committee after coming under fire from fellow leaders over his handling of peace talks with the Israelis, especially on the contentious issue of prisoner releases. His offer was unanimously rejected.

Israeli Commerce Minister Ehud Olmert was also due to meet with Palestinian finance minister Salam Fayad on ways to strengthen economic cooperation between the two sides, public radio said.

On Monday Olmert and Palestinian trade minister Maher al-Ashri agreed at a Euromed forum in Sicily to promote the peace process through trade, under the auspices of the Italian government.

WAR.WIRE