RIYADH, March 29 (Reuters) - Syria is to host next year's Arab summit, President Bashar al-Assad said at the closing ceremony of a summit of Arab leaders in the Saudi capital.

"I thank you for approving the holding of the next summit in Syria," Assad said in a brief speech at the end of the two-day meeting where Saudi Arabia sought to rally Arab countries around a land-for-peace proposal to Israel.

The summit meetings of heads of state of the 22-nation Arab League are held on a rotating basis in different countries.

A Western diplomat in Riyadh said Damascus' hosting the summit was a coup for Syria, which the United States has tried to ostracise in the region because of its alliance with Iran and Iranian-backed Lebanese group Hezbollah.

Syria's ties with Western countries and several Arab states were strained after the 2005 assassination of a Lebanese former prime minister, which many Lebanese politicians blame on Syria. Damascus denies any role in the killing of its former ally.

Syria's ties with the United States were badly hit by Assad's opposition to the U.S.-led invasion of neighbouring Iraq in 2003.

Syrian officials have been keen to argue that the Riyadh summit saw a thawing in relations with Saudi Arabia which Assad said last week had witnessed a "cloudy patch".

Assad has had several meetings with Saudi officials this week, including a two-hour session with King Abdullah on Tuesday night. Reporters saw Assad laughing and joking with Arab leaders at a reception and dinner.

"If Assad comes and behaves in a passive and deferential way with the king, that's the determining factor for bringing them back into the fold and that's what we've seen over the last three days," the Western diplomat said.

"The U.S. often assumes they can ostracise parties that disagree with them and then move their 'progressive' friends against them. But it doesn't work in the Arab context."

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