(Recasts with quotes, previous RIYADH)

By Ebtihaj Nakshbandi

JEDDAH, March 21 (Reuters) - Hamas leader Khaled Meshaal said on Wednesday that next week's Arab summit should back the new Palestinian national unity government in its efforts to end an international blockade.

"The world should deal with this unity government without discriminating between ministers ... and lift the financial blockade on the Palestinian people," Meshaal said, referring to United States and European Union readiness to meet only with non-Hamas ministers.

"We received encouragement from the Saudi leadership," he said about his talks with Saudi officials. "We hope these Arab positions will be translated into action at the Arab summit."

Asked about a Saudi-proposed initiative for peace with Israel that was adopted by Arab states in 2002, Meshaal said the Hamas-led Palestinian government had agreed to accept Arab summit decisions.

"What we support is in accordance with the Arab position ... We accepted the decision of Arab summits," he told reporters in Jeddah after talks with King Abdullah late on Tuesday, days after Hamas and rival Fatah formed a unity government under a deal sponsored by Saudi Arabia. He did not elaborate.

Saudi Arabia and other U.S.-allied Arab states want to re-launch the land-for-peace initiative at the March 28-29 Arab summit in Riyadh.

Hamas officials have welcomed the idea of a Palestinian state in the Gaza Strip and the occupied West Bank, including Arab East Jerusalem, but rejected an explicit recognition of Israel.

ISRAEL RESERVATIONS

The plan offers Israel normal ties with Arab countries in return for full withdrawal from all lands occupied in the 1967 Middle East war. Israel rejected the Arab initiative in 2002.

Saudi daily Okaz cited an Arab diplomat on Wednesday as saying Arab countries would reject any U.S. attempt ahead of the summit to persuade them to water down the plan.

U.S. Secretary of State Condoleezza Rice is to meet foreign ministers from Egypt, Jordan, Saudi Arabia and the United Arab Emirates in Egypt later this week.

Saudi Arabia last month brokered the Mecca deal that led to the formation of the Palestinian government this month between the Islamist group Hamas and the secular Fatah.

The agreement, which ended months of deadly infighting, included a formula that stopped short of international demands for recognition of Israel and renouncing armed struggle.

A senior Western diplomat in Riyadh said Saudi Arabia wants the Arab summit to reinforce support for the new government.

"They want to give renewed backing to the Mecca accord, which was badly received by the Americans. And they want to revive the Arab peace initiative," the diplomat said.

Alarmed by violence in Iraq, Lebanon and the Palestinian territories, Saudi Arabia has raised its diplomatic profile but risked the ire of its U.S. ally in warming to Hamas. (Additional reporting by Andrew Hammond)

AlertNet news is provided by