By Andrew Hammond RIYADH, March 29 (Reuters) - This week's Arab summit in Riyadh raises the prospect of eventual Saudi-Israel peace talks but the country that houses Islam's holiest sites must tread carefully in contacts with the Jewish state, analysts said. Arab officials at the summit, which ended on Thursday, said Saudi Arabia agreed to head a committee of Arab states which will be charged with promoting an Arab land-for-peace initiative for ending the chronic Arab-Israeli conflict. The mechanism could pave the way for Arab states with no ties to Israel to open up their own official diplomatic channels -- a long-time goal of U.S. administrations. Palestinian President Mahmoud Abbas told Arab leaders in the closing session that the committee should contact "concerned parties" over peace, in an allusion to countries including Israel. He also mentioned an international peace conference. Saudi Foreign Minister Prince Saud al-Faisal refused to be drawn on the proposals for selling the Arab peace initiative at a news conference after the summit but Arab League chief Amr Moussa said there would be no "normalisation for free". Diplomats and analysts said Saudi Arabia would have to tread carefully before giving any ground on talking to Israel, which Arab states want to return territories seized in the 1967 Middle East war to Syria, Lebanon and Palestinians, who want a state. "There's a certain tension between on the one hand saying 'we'll never talk to them (Israel)', and on the other the Arab initiative says 'we'll normalise eventually'," a Western diplomat said. MAJOR PRIZE Only three Arab League countries have full diplomatic relations with Israel -- Egypt, Jordan and Mauritania -- though some others have limited trade contacts. Saudi Arabia would be a major prize because of its prestige in the Arab-Islamic world. Israel reacted to the summit saying it was interested in dialogue with Arab states that "desire peace with Israel" in order to promote "normalisation" of ties and cooperation. Egypt's President Anwar Sadat was assassinated in 1981 by Islamist militants angry over his peace with Israel. "It's impossible, if they (the United States) are expecting the Saudis to establish any kind of relationship with the Israelis, said Dubai-based analyst Mustafa Alani. "The strategic value of Saudi Arabia will not allow the Saudi leadership to give a concession on this issue. I don't see it happening and it would backfire." Saudi Arabia is home to a radical Sunni Muslim ideology often termed Wahhabism. Sympathisers of al Qaeda, which is partly inspired by Wahhabi thought, have been carrying out attacks in an attempt to bring down the Saudi royals since 2003. Diplomats have confirmed several informal meetings between Israeli officials and Prince Bandar bin Sultan, who has led a round of shuttle diplomacy in the region in recent months mainly concerning in Iran, Iraq and Lebanon. Saudi Arabia has denied any contact with Israel. Diplomats in Riyadh confirm Prince Bandar's meetings but say it is not clear if they were approved by King Abdullah or not. A former ambassador to Washington, Bandar is seen as a maverick player. A European official at the summit in Riyadh said of potential Saudi-Israeli links: "It is going somewhere, but for the moment they are dancing around each other." (Additional reporting by Wafa Amr)
