(Recasts with Olmert, Abbas meeting, previously GAZA) By Adam Entous JERUSALEM, April 11 (Reuters) - Israeli Prime Minister Ehud Olmert will meet on Sunday with Palestinian President Mahmoud Abbas under a U.S.-brokered deal but Israel made clear the focus would not be on steps toward a Palestinian state as Abbas hoped. The fate of captured Israeli Corporal Gilad Shalit, seized by Gaza militants 10 months ago, is expected to dominate the talks after Israel rebuffed a list of about 1,400 Palestinian prisoners that Hamas wants released as part of a swap. Israeli officials said they objected because the list was stacked with militants deemed to have "blood on their hands" from deadly attacks against Israelis. But Olmert stopped short of rejecting the list outright and the government said it wanted to continue negotiations through Egyptian mediators. Hamas also signalled a willingness to continue negotiations but said they would be "doomed to fail" if Israel insisted that some militants be excluded. Sunday's talks will be the first between Olmert and Abbas since they agreed during a visit to the region last month by U.S. Secretary of State Condoleezza Rice to meet once every two weeks. At the meeting, Abbas hopes to begin talks about the outlines of a future Palestinian state. But Olmert's office said the discussions would focus on humanitarian and security issues. Olmert has said Abbas's power-sharing partnership with Hamas Islamists and Shalit's captivity meant no real progress towards Palestinian statehood could be made in their meetings. The Palestinians proposed holding the talks in the West Bank city of Jericho but it was unclear if Israel would agree. They last met in Jerusalem on March 11. CABINET APPROVAL "It is patently clear that these will be tough and complicated negotiations," Israeli Defence Minister Amir Peretz said of the prisoner list submitted by Hamas. Olmert held his first discussions about the list on Tuesday with Peretz and his top security advisers. Israeli ministers at the meeting expressed "disappointment and reservation" about the list, the prime minister's office said. Israel is looking into whether to loosen criteria for releasing prisoners. Any changes would need cabinet approval, a process that could take weeks. "This proves that Israel is not interested in achieving a compromise over the release of prisoners," Palestinian cabinet spokesman Ghazi Hamad said of the initial Israeli reaction. He said a deal was "doomed to fail" if Israel demanded that militants with "blood on their hands" be dropped from the list. "The Palestinians will not revise the list based on Israeli criteria," Hamad said, but he added changes were still a possibility. "If there are issues that (need) more negotiations, then things are not over yet." It was not immediately clear whether Hamas might agree on its own, or due to Egyptian pressure, to remove names from the list to facilitate a deal. Hamas cabinet minister Wasfi Kabha said on Monday that the some 1,400 names on the list included Marwan Barghouthi, a Fatah leader widely regarded as a possible successor to moderate President Mahmoud Abbas. A deal on Shalit, after months of deadlock, could be key to any progress in talks between Olmert and Abbas. Abbas is pushing for Olmert to hold talks based on an Arab land-for-peace initiative but Olmert has been reluctant to commit. Last month Arab leaders revived their 5-year-old peace plan that offers Israel normal ties with all Arab states in return for a full withdrawal from the lands it captured in the 1967 Middle East war, the creation of a Palestinian state and a "just solution" for Palestinian refugees. Shalit was seized last June by militants from Hamas and two other armed groups who tunnelled into Israel from Gaza. (Additional reporting by Nidal al-Mughrabi in Gaza and Ori Lewis in Jerusalem)
