The Arab League flagged a shift in the terms of its 2002 peace initiative to incorporate mutual land swaps under an Israeli-Palestinian settlement, a step welcomed by Israel and Washington on Tuesday.

The principle of land swaps has been affirmed by Israeli and Palestinian leaders in previous rounds of talks but has never formed part of the Arab initiative unveiled by Saudi Arabia in February 2002.

Under the original plan, the League's 22 member states would forge full diplomatic relations with Israel in exchange for "total withdrawal by Israel to the June 4, 1967 lines" and the establishment of a Palestinian state.

But the Arab League said Monday it could involve a "comparable and mutual agreed minor swap of the land" to reflect the realities on the ground.

Details of the revamped proposal emerged following talks in Washington between top Arab League members and US Secretary of State John Kerry.

However, chief Palestinian negotiator Saeb Erakat played down the significance.

"This is not something new. The Arab delegation presented the official Palestinian position: Upon Israel's unequivocal acceptance of the two-state solution on the 1967 border, the State of Palestine as a sovereign country might consider minor agreed border modifications equal in size and quality, in the same geographic area, and that do not harm Palestinian interests," Erakat said.

His Israeli counterpart, Tzipi Livni, hailed the Arab League announcement as "very good news," although another official was much cooler.

"Israel welcomes the encouragement that the Arab League delegation and the secretary of state have given to the diplomatic process," the official said, speaking on condition of anonymity.

"The two sides can present their positions when the negotiations start."

Livni described the move as "an important step," saying she hoped it would lead to a renewal of direct peace talks that collapsed just weeks after they were relaunched in September 2010.

"The statement that was made by the Arab League today is a very positive statement," she told AFP.

"I believe it is very important for the Palestinians to understand that the Arab world supports a negotiated peace treaty between Israel and the Palestinians that ends the conflict," she said, stressing the details would have to be hammered out by the two sides, "and hopefully soon".

"I hope that the Arab League's statement and position can help in relaunching negotiations between Israel and the Palestinians. The sooner, the better."

Echoing Livni, Kerry said on Tuesday it was "a very big step forward."

Details of the new stance were briefly mentioned by the Arab League delegation's leader, Qatari Prime Minister Hamad bin Jassim, at a news conference with Kerry.

"The Arab League delegation understands that peace between the Palestinians and the Israelis is starting (and) is a strategic choice for the Arab states," he said.

"The Arab League delegation affirmed that agreement should be based on the two-state solution on the basis of the 4th of June 1967 lines, with the possible of comparable and mutual agreed minor swap of the land."

Such a position marks a departure from the original text of the proposal, and comes closer to the US position as laid out by President Barack Obama in May 2011 that any agreement must be "based on the 1967 lines with mutually-agreed land swaps".

Since taking office on February 1, Kerry has plunged into the maelstrom of the Israeli-Palestinian conflict in the hope of breaking the impasse and seeing a resumption of some form of talks.

He has suggested the Arab Peace Initiative could provide a framework for a future deal.

For Israel, the principle of swapping land is a way to hold on to densely populated Jewish settlement blocs built on occupied Palestinian land.

Although the Palestinians accept the idea of "minor and mutually agreed land swaps" they have rejected outright any idea of letting Israel hold on to a large swathes of settlements.

Until now, Israeli Prime Minister Benjamin Netanyahu has categorically rejected outright any return to what he has said would be the "indefensible" lines before June 4, 1967

Palestinian president Mahmud Abbas, who is currently in Vienna, made no direct comment on the Arab League's announcement, saying only he was ready to resume talks and was waiting for a response from Washington and Israel.

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