Outgoing Israeli PRIME Minister Ehud Olmert is to meet Palestinian President Mahmoud Abbas for a new round of peace talks this week, the Palestinian foreign minister said on Monday.

"[Abbas] will meet Prime Minister Olmert on October 17 within the framework of their regular meetings," Riyad Malki said at a news conference in Ramallah.

Olmert and Abbas have been meeting about twice a month since the peace process was relaunched at a US conference in November.

Hounded by a series of corruption scandals, Olmert formally resigned on September 21 after the governing Kadima Party elected Foreign Minister Tzipi Livni as its new leader.

Livni is trying to form a new coalition government so she can also take over as prime minister and avert early elections.

Last month, Olmert said Israel must give up almost the entire occupied West Bank including east Jerusalem as the price for peace with the Palestinians.

But he later said the comments, made in a newspaper interview, reflected his private view and were not binding for Livni.

Also Monday, the Palestinian police chief in the West Bank said Israel has agreed in principle to the deployment of additional Palestinian forces in the city of Hebron.

Chief Hazem Atallah said that a date for the deployment has not been set.

The government of Palestinian President Mahmoud Abbas is trying to expand areas under its control. In recent months, his forces have taken up positions in the towns of Nablus and Jenin.

Hebron is divided, with the downtown area under full Israeli military control to protect several compounds of Jewish settlers there.

Israeli officials say the date for the deployment will likely be set in the coming days. It remains unclear how many policemen will be deployed, but the number is expected to be no more than several hundred.

Meanwhile, the office of International Mideast envoy Tony Blair said the Gaza Strip's banks are on the verge of collapse, according to a memo obtained Sunday by the Associated Press.

In the letter to Israel's defence ministry, Blair's office says Israel must funnel some 100 million shekels, or about $28 million, into Gaza each month to keep Gaza's 45 bank branches afloat. The Israeli shekel is Gaza's main currency.

Without the cash, it says the Palestinian Authority will not be able to pay the salaries of thousands of civil servants and Gaza's black market and money launderers will thrive.

Gaza's cash crunch is unrelated to the global financial turmoil that has rocked world markets over the past month.

Israel is concerned that money transferred to Gaza will end up in the hands of Hamas. It also is restricted by legislation that prohibits money transfers to terrorist groups. Since Gaza was overtaken by Hamas last year, Israel has considered it a "hostile entity." Since the takeover, Abbas has been left in charge of only the West Bank. However, Gaza has no independent financial system and is monetarily dependent on Abbas' Fateh government. Most of Gaza's government employees are also still paid directly by Abbas.

Blair's head of mission Robert Danin wrote that Gaza's banks need at least 300 million shekels ($83 million) on any given day to accommodate the Gaza economy's liquidity needs. The moderate Palestinian West Bank government has the needed funds, but it is blocked by Israel from transferring shekels freely to the Hamas-controlled Gaza Strip.

Danin wrote that even after Israel allowed some 50 million shekels ($13 million) into Gaza last month, major shortages exist, threatening to allow Hamas' “money laundering operations” to increase.

With cash shortages in Gaza, large quantities of money have been smuggled into Gaza through the vast network of underground tunnels from Egypt.

Israel's defence ministry did not immediately respond to messages seeking comment.