Israeli and Palestinian leaders agreed Monday to form negotiating teams that would begin resolving issues central to the creation of a Palestinian state in advance of a U.S.-sponsored peace conference proposed for later this year.

Saeb Erekat, the chief Palestinian negotiator, said the working groups would "begin talking about the hard-core issues," a reference to the final borders of a Palestinian state, the status of Jerusalem and the claim by Palestinian refugees that they have a right to return to homes in Israel.

Israeli officials said the teams were being created to reach the goal of a two-state solution.

"This is very significant," Erekat said. "It is not something we have had since 2000," a reference to the U.S.-backed peace process that collapsed in January 2001.

The announcement followed a meeting here Monday between Israeli Prime Minister Ehud Olmert and Palestinian Authority President Mahmoud Abbas. Both men are under pressure from the Bush administration to devise a working agenda for the proposed conference, which will probably be held in Washington.

Palestinian officials had hoped the leaders would use the meeting, the latest in a serious of confidence-building sessions, to begin drafting a document detailed enough to encourage powerful Arab countries to attend the conference.

But Israeli officials have sought to play down expectations for the conference, which is scheduled for November. David Baker, an Israeli government spokesman, said that Monday's session "added momentum to progress made in the previous meetings" and that the teams to be formed would "deliberate" on the issues to be resolved before a Palestinian state could emerge.

Abbas, of the secular Fatah party, and other moderate Palestinian government leaders say the conference must produce tangible results that will facilitate the creation of a Palestinian state.

Most of the roughly three-hour meeting Monday involved everyday concerns, including security and Palestinian movement in the West Bank, rather than the broad issues of Palestinian statehood.

The leaders agreed to form cabinet-level committees to help the two governments work on matters of mutual interest, such as water rights, environmental issues and security. Those "ministerial committees" will be coordinated by Palestinian prime minister Salam Fayyad.

"These issues are just as important in building up to a two-state solution," said Miri Eisin, Olmert's spokeswoman. "How do you divide up responsibility for sewage, for example?"

Israeli officials said Olmert also pledged to work toward releasing another batch of Palestinian prisoners during Ramadan, the Muslim month of fasting that begins this week.

Since Hamas, an armed Islamic movement, took control of the Gaza Strip, Abbas has sought to convince demoralized Palestinian voters that negotiating with Israel is the best way to achieve a Palestinian state. Hamas does not recognize the Jewish state's right to exist.

Olmert, an unpopular prime minister overseeing a durable governing coalition, has sought to improve Abbas's political position against Hamas. In July, Israel released 255 of the roughly 10,000 Palestinians it holds, nearly all of them from Abbas's Fatah party.

Separately, a rocket fired from Gaza early Tuesday struck an Israeli army training base, critically injuring one soldier and leaving three others in serious condition, according to military officials who said 39 others were lightly wounded, many by shrapnel. The rocket struck while the soldiers, who were finishing basic training, were asleep in tents. The Islamic Jihad and the Popular Resistance Committees both asserted responsibility for the attack.