Israeli and Palestinian leaders agree to 'rebuild trust' at surprise summit

But row breaks out between Foreign Office and Archbishop of Canterbury over Middle-East Christians

Ehud Olmert, the Israeli Prime Minister, unexpectedly held his first summit meeting with the Palestinian President, Mahmoud Abbas, last night and promised to release $100m (£51m) of tax it had been withholding since Hamas came to power ten months ago.

The pledge to remit about a fifth of the total withheld tax and promises to ease some travel restrictions in the West Bank were among concessions offered by Mr Olmert to help Mr Abbas without directly aiding the Hamas-led Palestinian authority.

At the first set-piece meeting between an Israeli and Palestinian leader since Mr Abbas agreed a ceasefire with Ariel Sharon in February 2005, Mr Olmert also said he would consider ways of increasing the amount of cargo passing through the Karni crossing between Gaza and Israel. Mr Olmert's office said the talks were a "first step toward rebuilding mutual trust and fruitful co-operation".

While Mr Olmert repeated his willingness to release long-term prisoners ­ a demand long made by Mr Abbas ­ he made it clear there could be no movement until the release of the Israeli corporal Gilad Shalit seized by Hamas and other militants last June. Similarly, he made it clear that any extension of the fragile ceasefire to the West Bank would require it to be enforced in Gaza.

Israeli officials said the details of how the withheld tax revenues would be remitted "for humanitarian purposes" have still to be worked out. But Mr Olmert clearly intends that Mr Abbas should take the credit rather than Hamas ­ a strategy urged on him by Tony Blair last week.

The British government yesterday bit back at the Archbishop of Canterbury, Dr Rowan Williams, who had warned that "short-sighted" and ignorant " policy in Iraq had endangered Middle East Christians.

The Foreign Office said that extremists rather than British policies were to blame for Christians suffering and that it "disagreed" with Dr Williams' views. The Archbishop spoke at the end of a three-day visit here with three other British church leaders, including the head of the Roman Catholic Church in England and Wales, Cardinal Cormac Murphy-O'Connor.

The two senior churchmen also drew attention to the plight of the Christian and wider Palestinian community in the Holy Land. Both urged greater international efforts to secure a peace process for the Israeli-Palestinian conflict.

Before he flew back to London, Dr Williams was asked on Radio 4's Today programme whether he still stood by the joint statement he issued with the Cardinal the month before the 2003 invasion, declaring that "doubts still persist about the moral legitimacy" of the war. He replied: " It's all too easy to use hindsight and say 'I told you so', but I think I can generally say I haven't yet seen cause to revise my views on that point."

The Archbishop said attacks on Christians ­ including the murder of some priests ­ and the "massive departure" of Christians from Iraq since Saddam Hussein's fall had "something to do... with the way Christians can easily be branded as pro-Western, as unreliable allies in this region". In Bethlehem, where a 1970s Christian majority among Palestinians has now dwindled to 45 per cent in the city and 20 per cent in the wider district, he said: "We have heard a lot about the departure of Christians, which is a combination of the pressures on everybody in the Bethlehem region and a sort of growing, subtle, not always violent, pressure on Christians from the Muslim majority."

Despite the controversy, the church leaders have been at pains to stress the pastoral, rather than political, purpose of their pre-Christmas trip here. On Friday they watched a poignant nativity pageant performed by children under six in traditional Palestinian dress at the century-old St Vincent's Creche, run by the Christian Daughters of Charity. The children are mostly born out of wedlock and abandoned by their mothers - sometimes in rubbish bins or at the roadside - for fear of facing "honour killings" by their families. After the children sang Away in a Manger in Arabic, the eminent clerics lustily sang the carol back in English.

But both Dr Williams and Cardinal Murphy-O'Connor, speaking before the announcement of the Olmert-Abbas talks, said they had been struck by deep pessimism among Palestinians about peace. The separation barrier ­ which round Bethlehem is a nine-metre high concrete wall ­ and the international boycott of the Hamas-led Palestinian Authority are choking economic life from the city, traditionally dependent on tourists and pilgrims.

Dr Williams, who helped to mediate a meeting between Jewish and Muslim clerics while he was here, said that he understood Israel's argument that suicide bombings had plummeted since the erection of the barrier, but warned that there was a "middle and long-term" cost of destabilising Palestinian society. "I actually care about the survival of Israel," he said, "but I want to see an Israel with stable neighbours."