(Adds U.S. comment)

By Adam Entous

JERUSALEM, June 6 (Reuters) - Palestinian President Mahmoud Abbas on Wednesday called off a summit with Israeli Prime Minister Ehud Olmert, seeking commitments Israel will release frozen Palestinian funds and take other steps.

"Abbas will not meet Olmert unless he responds to Palestinian demands, or at least some of these demands," Palestinian Foreign Minister Ziad Abu Amr said.

Olmert and Abbas had been due to meet in Jericho on Thursday for what would have been their first encounter in the occupied West Bank, reviving U.S.-brokered talks that are supposed to focus on aspects of Palestinian statehood but have been stalled since April.

Olmert told British Prime Minister Tony Blair by telephone "it was the Palestinians who had requested the postponement for their own reasons", Olmert's office said. Government spokesman David Baker said Olmert was ready to meet Abbas at "any time".

Olmert wrote in a British newspaper that Israel was prepared to make "painful concessions" to achieve peace with the Palestinians and was ready to discuss with Arab states their land-for-peace initiative.

Olmert's office said Israel was interested in peace with Syria but stopped short of signalling any change in Israel's refusal to renew talks with Damascus last held in 2000.

Ahead of the planned Olmert-Abbas summit, negotiators had been haggling over Israeli confidence-building measures, including release of Palestinian tax funds Israel has withheld since Islamist Hamas came to power in 2006 and an easing of travel restrictions in the West Bank.

Olmert has been under heavy U.S. pressure to make gestures that could strengthen Abbas's secular Fatah faction in its power struggle with Hamas, which leads a Palestinian unity government.

"There's a lot going on. It is important that they meet," State Department spokesman Sean McCormack said. "We are confident, despite this delay, that they will get together, that they will get down to issues of problem-solving."

Olmert is scheduled to visit Washington on June 19.

FUNDING DISPUTE

Saeb Erekat, an Abbas aide, said the Palestinians wanted word from Israel it would free up the tax revenues, estimated by Palestinian officials at some $700 million.

"We are not setting conditions but these are points that should be agreed upon (before the meeting)," he said.

Ahead of the planned talks, Olmert's office signalled a willingness to transfer at least some of the funds, although not the full amount sought by the Palestinians.

Israeli officials estimate only $300 million to $400 million could be transferred to the Palestinians because the rest of the money has been frozen by court orders.

The officials also said any transfers would have to go through a mechanism to ensure money did not end up in Hamas hands. Abbas's aides say all the money should be returned without conditions.

Abu Amr said Abbas and Olmert would both attend a meeting in Cairo of the Quartet of Middle East mediators on June 25, but Olmert's office said no invitation had been extended to the Israeli leader.

Olmert also signalled ahead of the planned summit he would not accept Abbas's call for a truce with militants in the Gaza Strip and the West Bank.

Israel stepped up its military operations in Gaza last month in response to a surge in rocket attacks against Israeli towns. Israeli forces killed two Palestinians on Wednesday, including one in the West Bank, and Hamas fired mortar bombs at an Israeli-run border crossing with Gaza.

Fatah and Hamas formed the unity government in March but fighting between them has continued. Abbas said on Tuesday the Palestinians were on the brink of civil war.

U.S. Secretary of State Condoleezza Rice announced on March 27 that Olmert and Abbas planned to meet roughly every two weeks for talks that could eventually lead to discussions on a Palestinian state.

While the two met on April 15, their dialogue has been delayed by issues including Palestinian internal violence, Israeli-Palestinian fighting and Olmert's uncertain political future. (Additional reporting by Jeffrey Heller in Jerusalem; Mohammed Assadi and Ali Sawafta in Ramallah; Arshad Mohammed in Washington)

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