RIYADH, Aug 7 (Reuters) - Saudi Arabia voiced support on Tuesday for a U.S.-sponsored Middle East peace conference and said a future Palestinian state should be "viable" on contiguous territory, apparently backing Washington's stand on the issue.

Washington backs Israel in its rejection of a withdrawal from all of the lands it occupied in the 1967 Middle East war, and Saudi Foreign Minister Prince Saud al-Faisal appeared to endorse that position in a statement that did not call for full withdrawal but used U.S. language about a "viable" state.

"We have noted a wide Arab and international welcome for the positive elements in the American initiative, especially since the idea of holding an international conference was an Arab demand," Prince Saud said at a news conference in Jeddah, which was aired on state television.

"The success of this conference depends on dealing with the core issues of the conflict and a comprehensive solution, establishing a viable Palestinian state on contiguous territory, dismantling settlements and solving the problem of the refugees and Jerusalem," the senior Saudi royal said.

He said this would be in line with an Arab peace initiative launched at an Arab summit in March which calls for Israel to withdraw from territories occupied in 1967 in return for normal relations with the 22 Arab countries.

Palestinians fear that a final state will involve isolated cantons in the West Bank which do not form one continuous body of land.

Arab foreign ministers last week gave a qualified welcome to U.S. President George W. Bush's proposal to hold a Middle East peace conference and Saudi Arabia said it could attend if it deals with core issues leading to a Palestinian state.

Washington's Arab allies have been urging the United States to focus on resolving the historic Israeli-Palestinian conflict, which they fear is stoking Iran-backed radicalism that threatens the regional political order.

But critics in the Arab world say Egypt, Saudi Arabia, Jordan and Palestinian President Mahmoud Abbas' Fatah group -- Washington's key Arab allies -- are willing to make too many concessions for the sake of arriving at statehood.

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