Five former State Department and Pentagon officials are proposing Israeli and Palestinian capitals in Jerusalem and excluding Arab refugees from returning to Israel as part of an Middle East accord.

In a six-page policy statement submitted to Secretary of State Condoleezza Rice, they also suggested a series of peace conferences following the one she hopes to convene next month, probably in Annapolis, Maryland, near Washington.

Hamas, which controls Gaza and about one-third of Palestinian-held land, has not met US terms

for attending. Those conditions are recognizing Israel's right to exist and abandoning violence against the Jewish state.

But the ex-officials suggested Hamas might be drawn to attend a second conference, which implicitly would accept the first one and Israel's existence. They called the role of Hamas the most difficult issue in peacemaking.

Jerusalem's future and that of Palestinian refugees have snarled past US peace efforts. Former President Bill Clinton's mediation efforts between the late Palestinian leader Yasser Arafat and then-Israeli Prime Minister Ehud Barak envisioned sharing Jerusalem.

Clinton ruled out requiring Israel to take in most Palestinians or their families who claimed to have been

forced out of Israel during creation of the Jewish state in 1947-8.

It will be very difficult, "but not impossible," said Robert Pelletreau, a former US ambassador to Egypt and

ex-assistant secretary of state for the region. "There is a little bit of momentum starting to build"

with talks between Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas, and with former British Prime Minister Tony Blair as a mediator, he said in a telephone interview.

Along with announcement of the conference, he said, "You have several things that can reinforce each other if they are framed properly."

"The refugee issue is the most difficult," he said. "And Jerusalem is right up with it."

'Hamas most difficult issue'

Edward S. Walker, a former ambassador to Israel and Egypt, said Hamas was the most difficult issue. "Unless Hamas changes its stripes there is no way to deal with them on the current situation," He said in an interview. But, Walker added, "A lot of things that appear to be impossible now might well become possible if there is hope that a true and real peace can be established."

The policy paper was prepared by Israel Policy Forum, a nonpartisan American group that promotes sustained US diplomacy to end the conflict between Israel and its neighbors.

Next month's conference should reaffirm that the goal is two independent and sovereign states, with borders roughly along the lines that separated Israel from the Arabs before the 1967 Middle East war, the statement said.

It also called for a "just solution" to refugee questions that recognizes "The suffering and the plight of the

Palestinian refugees." They would be permitted to move only to the new Palestinian state, with compensation from Israel, the Palestinian state and other nations.

Besides Pelletreau and Walker, the former US diplomats included Thomas Pickering, an ex-undersecretary of state and ambassador to Israel and Jordan; Samuel Lewis, former ambassador to Israel; and Frederic C. Hof, Mideast official in the Pentagon.

The report was written and coordinated primarily by Steven L. Spiegel, political science professor at the University of California, Los Angeles.

Rice has been meeting with former US negotiators and ex-American diplomats, and has not replied to the policy paper, State Department spokesman Sean McCormack said Wednesday.

In a separate message to Rice, 79 senators lined up by the pro-Israel lobby, the American-Israel Public Affairs Committee, said friendly Arab countries should participate in the conference as full partners of the United States.

The Arab countries should stop support for terrorist groups and cease all anti-Israel and anti-Jewish incitement while pressing Hamas to recognize Israel and to reject terror, AIPAC said.

The senators praised Rice, Israel and the Palestinian government for working hard to advance the cause of peace in the Middle East but said peace will remain elusive "without a sincere commitment from our allies."