(Adds Palestinian premier remarks in paragraph 15)

By Wafa Amr and Andrew Hammond

RIYADH, March 28 (Reuters) - Saudi Arabia's King Abdullah called on Wednesday for an end to the international blockade on the Palestinian government to revive efforts to resolve the Arab-Israeli conflict at the heart of the region's problems.

Addressing an Arab summit, world and Muslim leaders offered support for a 2002 Arab peace plan being re-examined at the two-day meeting and echoed the king's call for Arabs to unite to end sectarian violence that is driving Iraq towards civil war.

"It has become necessary to end the unjust blockade imposed on the Palestinian people as soon as possible so that the peace process can move in an atmosphere far from oppression and force," King Abdullah said at the opening of the summit.

Saudi Arabia last month brokered a unity government of Palestinian President Mahmoud Abbas's Fatah faction and Hamas, hoping it would help end a crippling Western blockade imposed after the Islamist group took office more than a year ago.

Israel and the United States have urged countries to cut political and financial support for the Hamas-led government because Hamas refuses to recognise Israel, renounce violence and accept existing peace deals.

Fears are high among Arab leaders that a U.S.-led attack on non-Arab Iran, which has refused to comply with U.N. demands to halt atomic work, could further destabilise their region.

Riyadh, pressed by its ally Washington to show more leadership in the region, has called on Sunni Muslim states to overcome divisions, arguing a united front will help persuade Israel to address Palestinian grievances.

Palestinian ambassador Jamal Shobaki said the leaders had agreed to endorse a set of resolutions heavily influenced by the plan, which also calls for the creation of a Palestinian state and a "just solution" for Palestinians displaced in 1948.

"The leaders had approved all the draft resolutions in the closed session," he told Reuters. "Tomorrow the session will only include speeches by some of the leaders before the final communique is read."

INTERNATIONAL BACKING

Arabs hope more international backing for the plan this time will help restart the stalled Arab-Israeli peace process.

"The Arab peace initiative is one of the pillars for the peace process ... This initiative sends a signal that the Arabs are serious about achieving peace," U.N. Secretary-General Ban Ki-moon said in an address, according to an Arabic translation.

Israel has objected to key elements in the peace plan, including the proposed return to 1967 borders, the inclusion of Arab East Jerusalem in a Palestinian state and the return of Palestinian refugees to homes in what is now Israel.

The final draft resolution avoids any mention of the phrase "right of return" for refugees.

Palestinian Prime Minister Ismail Haniyeh urged leaders not to compromise on the right of refugees to return to homes lost in the turmoil surrounding the creation of the Israeli state.

"What I heard from the Arab leaders on the issue was reassuring... (it is a) sacred issue," he told reporters later.

Israel's deputy prime minister, Shimon Peres, said in a statement: "We have some disagreements on a number of issues. The question is how to overcome them, by coercion and force or via negotiation.

"They can bring their positions and we will bring ours, and we can reach an agreement as we did with Egypt and Jordan."

FOCUS ON IRAQ VIOLENCE

Violence in Iraq is also a focus of the summit. King Abdullah stressed Sunni-Shi'ite violence in Iraq threatened the stability of the oil-producing Gulf region.

"In beloved Iraq, blood flows between brothers in the shadow of illegitimate foreign occupation and hateful sectarianism, threatening a civil war," he said, in unusually strong criticism of the U.S. presence in Iraq.

Iraqi Foreign Minister Hoshiyar Zebari told Reuters the summit resolutions would include a call by Iraq's government for all militia to disband and for the constitution to be revised.

Crises in Sudan and Lebanon are also under discussion.

With no end in sight to a standoff between Lebanon's Western-backed government and Hezbollah-led opposition, the summit text will express only general backing for Lebanon and a tribunal to try suspects in the murder of its ex-prime minister.

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