As the Palestinian Authority claimed on Monday that China and Switzerland had decided to deal with the new Palestinian unity government, Foreign Minister Tzipi Livni said Israeli talks with Arab League states would not replace negotiations with the PA, but complement them. Livni, in a meeting Monday with visiting Chinese Middle East envoy Sun Bigan, explained that the Arab states can provide a "political horizon" for Israel at this juncture, without waiting for the end of the conflict. "The Arab world," she declared, "can also strengthen moderate Palestinians to help them make necessary concessions." The foreign minister's comments came ahead of Wednesday's meeting of Arab League foreign ministers in Cairo. They are expected to set up working groups to implement last month's decision in Riyadh to relaunch the Saudi peace initiative of 2002, which calls for normalization in return for an Israeli withdrawal from the West Bank and Golan Heights and other demands. Amid talk that Israel could participate in one of the groups alongside Arab countries which already have diplomatic relations with the Jewish state, Israel is pushing for Saudi Arabia to be included in any such configuration, according to sources in Washington. While merely being part of a working group under the aegis of the Arab League would represent a minor breakthrough in Arab attitudes towards Israel, Jordan and Egypt are already in close touch with Israel. There is some discussion that Qatar, which has low-level diplomatic contacts rather than the full relations of Egypt and Jordan, would also participate, but Israel places more importance on the presence of Saudi Arabia, a regional powerbroker which has never recognized Israel. Additionally, Israel would like to see "discussions with substance" as part of the working group, according to one source, and that would be more likely with Saudi participation. Prime Minister Ehud Olmert, in a TV interview with the Canadian Broadcasting Corporation on Monday, described Saudi Arabia as a "key to progress" in the Middle East, saying it must play a "central" role in resolving the Israeli-Palestinian conflict. He also called on the Saudis to take the lead against Islamic radicalism. "The time has come for the moderate forces in the Arab world to make a statement of courage and of leadership that will send a message across the Middle East that the days of the extremists are over, and the Saudis can play a major vital role in this direction," Olmert said. Vice Prime Minister Shimon Peres, who also met with the Chinese envoy on Monday, said there were significant changes in the Saudi position and now was the time to move from the stage of declarations to the stage of talks. "If Arab states decide to set up working groups it is important we talk to them," Peres said. A diplomatic official in Jerusalem said the moderate Arab states had a very important role to play because of the weakness of Palestinian moderates and the dysfunctional nature of Palestinian politics. The moderate Arab states could help fill the vacuum that currently exists, the official said. The official added that Israel would have no problem sitting together with Palestinians in the working groups as long as they represented PA Chairman Mahmoud Abbas and not the government of Ismail Haniyeh of Hamas. There have been reports, however, of Palestinian dissatisfaction with Israeli participation if it means diplomatic rewards for Israel - such as would be reaped if the Saudis join a working group with Israel - without any Israeli concessions. Without going into the specific configuration of the working groups, a State Department official said the US was pleased with the efforts being made by the Arab League to follow up on the Riyadh conference. "We welcome the continuing steps the Arab League as a whole and its members are taking to move the process forward," the official said. The Americans have favored movement on the Arab League initiative, suggesting that Arab normalization need not be dependent on a resolution of the Israeli-Palestinian conflict. Sun told his Israeli interlocutors that the Israeli-Palestinian conflict should be solved through negotiations to reach a solution of two states for both peoples. He responded positively to the proposal by Peres for Chinese companies to invest in joint Israeli-Jordanian-Palestinian regional development projects. Livni said the Palestinians would have to provide answers to Israeli security concerns in the framework of the talks that were currently taking place, particularly concerning the smuggling of weapons into the Gaza Strip. In Ramallah, Palestinian Information Minister Mustafa Barghouti said Monday that envoys from Switzerland and China had met recently with Palestinian Foreign Minister Ziad Abu Amr, an independent, and informed him that they would engage with the new PA government. China and Switzerland said "they are going to deal with our government, without any discrimination between its members," Barghouti said. Officials in Jerusalem declined to comment directly on Barghouti's remarks, but said they believed there was still an international consensus against dealings with Hamas. "We believe it's very important that the international community not give legitimacy to an unreformed Hamas movement that refuses to renounce violence, refuses to recognize Israel and refuses to support peace," Foreign Ministry spokesman Mark Regev said. In Switzerland, Foreign Ministry spokesman Jean-Philippe Jeannerat said his country never did impose an outright boycott on the Hamas government - unlike the US, EU and Israel. But he did not say specifically that his nation's envoys would meet with Hamas ministers now. Barghouti's announcement came as China's Middle East envoy, Sun Bigan, was in the region for talks with Israeli and Palestinian officials. Jing Lu, a spokesman for the Chinese Embassy in Tel Aviv, said he was unaware of any new statement of Chinese policy and noted that Sun was not scheduled to meet with Hamas members during his swing through the region. "Up to now, we haven't had any direct contact with Hamas people, including those Hamas members in the unity government," he said. China, however, was among the countries which hosted members of the previous Hamas government.