Efforts by rival Palestinian factions to form a national unity government have hit a snag.  But Mideast peace efforts may be continuing behind the scenes.  Israeli media are reporting an unprecedented meeting between senior Israeli and Saudi Arabian officials.

The ruling Islamic militant group Hamas and the more moderate Fatah faction have called off high-level talks on forming a Palestinian unity government that would be acceptable to the international community. 

Hamas has been crippled by U.S. and European sanctions.  But talks broke down when Hamas refused to recognize Israel, a key international requirement for the restoration of hundreds of millions of dollars in aid to the Palestinian Authority.

Palestinian Foreign Minister Mahmoud al-Zahar of Hamas says it is useless to appease the West and recognize Israel since there has been no benefit from doing so in the past.

Fatah, on the other hand, sees little benefit from the Hamas position, which has left the government broke and in disarray.

With Palestinian talks faltering, another track for diplomacy could be opening: Israeli media reports say Prime Minister Ehud Olmert had a secret meeting with a senior Saudi Arabian official to discuss reviving the peace process.

Both Israel and Saudi Arabia denied the reports.

Mr. Olmert described the reports as "speculation" and "imagination."

The denials were predictable because Israel and Saudi Arabia do not have diplomatic ties.  But the two countries appear to have something in common since the recent war in Lebanon, where Israel battled Iranian-backed Hezbollah guerrillas for 34 days.

Prime Minister Olmert said Saudi Arabia has played a positive role in the region recently, pointing out that it publicly criticized Hezbollah for sparking the war.  Israeli analysts say both Israel and the Saudis have a mutual interest in curbing the growing regional influence of Iran.