Saudi Arabia has signalled that it will not attend the Middle East peace conference scheduled by the US for this month unless there is significant agreement in advance on the core issues that divide Israelis and Palestinians.

But Prince Saud al-Faisal, the foreign minister, also held out a vision of normalisation between the Arab world and Israel - "not just the absence of war" - if the conflict could be resolved.

"We need a successful meeting. To be successful it must deal with the main issues of peace in the Middle East: Jerusalem, borders, the return of the Palestinians," he told reporters at the end of the Saudi state visit to London yesterday.

The US and Britain have been working hard to persuade their Saudi allies to attend the event in Annapolis, Maryland, although no formal invitations have yet been issued and there are signs the timing may slip. Israeli and Palestinian officials have been trying to agree a joint document amid fears that failure could trigger new violence. Saudi Arabia has led an Arab League initiative calling peace with Israel "a strategic option". Its attendance is considered vital by the US and Israel to create a sense of wider legitimacy.

"We have been negotiating for 70 years and we are still at first base," said Prince Saud. "This is now the oldest conflict in the world. It is becoming more rather than less complicated over time. We need to move expeditiously in a reasonable amount of time."

In a measure of changing attitudes in the conservative heartland of the Arab world, he characterised the conflict merely as "a border dispute [with] two sides fighting over the same territory".

But Israel, said the prince, had not produced "an honest proposal" on how to resolve it. "The Arabs have come with one: total peace for a total withdrawal, with all the security necessary for both sides, with full recognition: a peace that is not just an absence of war but a peace of normalisation, of open borders, of exchanges between Israelis and their neighbours."

Israel, he insisted, had to stop building settlements on occupied land. "It would be foolhardy for the Palestinians to negotiate a return of their territories while the Israelis are building more settlements. How can they negotiate when there is a wall being built that takes away much of the West Bank?"

An effort was needed too to reunite the Palestinians - bitterly divided since the Islamist movement Hamas took over the Gaza Strip last summer. "Peace cannot be made by one man," - an apparent reference to Mahmoud Abbas, the Palestinian president and Fatah leader. "It cannot be made by even half a people. There must be some form of consensus among the Palestinians in this regard, as there must be among the Israelis who want peace."

Prince Saud revealed that his country and the other five members of the Gulf Cooperation Council had suggested setting up a consortium, possibly based in Switzerland, to provide enriched uranium to Iran to defuse its confrontation with the west over its nuclear plans. "They [Iran] have responded that it is an interesting idea and they will come back to us," he said. He warned that any US attack on Iran's nuclear facilities would further destabilise the Gulf. The only solution was for the whole region, including Israel, to be declared free of weapons of mass destruction.