British Prime Minister Gordon Brown on Tuesday urged Israel's caretaker leader Ehud Olmert to ease constraints on the struggling Palestinian economy.

Brown held talks with Olmert at Downing Street a day after joining Salam Fayyad, the Palestinian prime minister, at a forum in London to promote British investment in the Palestinian territories.

The pair also discussed the issue of Israeli settlements in the West Bank, which Brown described Monday as a "barrier that's got to be overcome" in the Middle East peace process.

Following the meeting, a Downing Street spokesman told journalists: "The meeting was an opportunity to discuss the prospects for peace in the Middle East. Both men were strongly committed to making all possible progress.

"The prime ministers discussed the issue of Israeli settlements and the importance of the Palestinian economy and measures that can be taken to reduce the constraints on the Palestinian economy.

"It is important that we can establish a stable economy for a potential Palestinian state. A viable Palestinian state relies on having a flourishing private sector.

"We recognise that restrictions on trade and movement and capital flows have an impact on the development of that private sector."

The Palestinian leadership say the 600 roadblocks the Israeli army operates around the West Bank seriously hamper the free movement of people and goods and represent the biggest obstacle to economic growth.

Brown's spokesman said Britain was "strongly committed to working with all sides to ease those constraints."

On Monday, Brown threw his weight behind an Arab League appeal to US president-elect Barack Obama to give added urgency to the Middle East process.

The 22-nation Arab League said last week it had outlined its vision for an end to the decades-old conflict in a letter signed by Saudi Foreign Minister Prince Saud al-Faisal and delivered to Obama via an aide.

Olmert, who is facing graft charges, handed in his resignation on September 21 but plans to remain at the head of a caretaker Israeli government until after early general elections scheduled for February 10.