(Adds White House comment, full Olmert quotes)

By Adam Entous

JERUSALEM, Oct 8 (Reuters) - Israeli Prime Minister Ehud Olmert said on Monday he was determined to advance the peace process with the Palestinians but that an accord was a long way off despite U.S. plans for a conference on statehood next month.

Olmert has sought to lower expectations for the conference to deflect pressure from right-wing coalition partners who are opposed to dividing Jerusalem and taking other sweeping steps as part of any deal with Palestinian President Mahmoud Abbas.

Olmert told the Israeli parliament that he was entering a "substantial diplomatic process" with Abbas but gave no details about what he may offer to help bolster the Fatah leader against Hamas Islamists who seized the Gaza Strip in June.

"I want to serve notice here, in the most resolute way, that I do not intend to look for excuses to avoid a diplomatic process," Olmert said as Israeli and Palestinian negotiators on Monday opened talks at a secret location in Israel over a joint document that would be presented to the U.S.-sponsored conference in Annapolis, Maryland.

"I feel that there is something to discuss and discussion is desirable," Olmert said, though he cautioned that a peace accord was "yet far away on a path full of obstacles".

Olmert and Abbas agreed last week that the joint document would be the basis for formal statehood negotiations that would begin after the conference in mid-to-late November.

Abbas aides said those final-status negotiations, over the borders of a future Palestinian state and the fate of Jerusalem and millions of Palestinian refugees, should be completed within six months -- a timeline Israel has refused to commit to.

"We are seeking to deal with these issues and ensure the success of the conference," Abbas told reporters in the West Bank city of Ramallah.

Nabil Abu Rdainah, an Abbas aide, told the official WAFA news agency that diplomatic failure would prolong the conflict and "drown the region in violence and chaos".

Gordon Johndroe, White House National Security Council spokesman, said: "The Israelis and Palestinians are in the midst of discussions now on a joint statement for the meeting in Annapolis next month. It would be premature and inappropriate for me to comment on any specific issues at this time."

'INEVITABLE DECISIONS'

Olmert only alluded cryptically to "inevitable decisions" that will have to be taken by Israel as part of a possible agreement to create a Palestinian state.

Olmert said these decisions would "include foregoing the full and absolute implementation of the dreams that sustained our national ethos for many years".

He used similar language in the past to signal the need for withdrawing from Arab land captured in war and to which some Jews claim a biblical birthright.

Olmert's remarks were interrupted several times by rightist lawmakers who demanded that the prime minister explain his plans for the future of Jerusalem.

Israeli opposition leader Benjamin Netanyahu of the hawkish Likud party accused Olmert of agreeing in advance to cede the occupied West Bank and Arab East Jerusalem to the Palestinians.

"One outcome is clear -- the Israeli army leaves, Hamas enters," he told Israel's Knesset following Olmert's speech.

The attacks appeared aimed largely at Olmert's top deputy, Vice Premier Haim Ramon, who said on Monday that Israel should be prepared for future negotiations over dividing Jerusalem.

Ramon told Israel Radio that talk of ceding control over holy sites in Jerusalem's Old City, which he referred to as the "holy basin", was premature for now.

But he added: "We need to say there will be a special regime in the 'holy basin', which we will talk about in the future."

Ramon is one of Olmert's closest confidants, but the prime minister, weakened by corruption scandals and last year's Lebanon war, has not committed publicly to his deputy's ideas. (Additional reporting by Dan Williams, Avida Landau and Ari Rabinovitch in Jerusalem and Wafa Amr and Ali Sawafta in Ramallah)

AlertNet news is provided by