Palestinian president Mahmud Abbas yesterday ruled out US-brokered indirect peace talks with Israel unless it backs down on settlements, as Arab leaders closed ranks over Jerusalem at a summit in Libya.

Abbas, at the opening of the two-day summit in the Mediterranean city of Sirte, echoed widespread concern that the Middle East peace process was in peril and urged his Arab peers to "rescue" Jerusalem.

"We cannot resume indirect negotiations as long as Israel maintains its settlement policy and the status quo," he said in a speech after UN chief Ban Ki-moon had addressed the summit seeking Arab support for the talks.

Abbas accused Israel of seeking to wipe out the Arab identity of Jerusalem through "ethnic cleansing" and insisted that Israeli-annexed east Jerusalem must be the capital of any future Palestinian state.

"We have always said that Jerusalem is the jewel in the crown and the gate to peace," he said.

The UN chief urged Arab leaders to facilitate the "proximity" talks between Israel and the Palestinians, saying "our common goal should be to resolve all final-status issues within 24 months".

Ban also reiterated that Israel's settlement activity in mainly Arab east Jerusalem was "illegal" and stressed that Jerusalem must emerge "as the capital of two states".

Turkish Prime Minister Recep Tayyip Erdogan, another guest speaker, blasted Israel's policy of dealing with the whole of Jerusalem as its united capital as "madness".

"Jerusalem is the apple of the eye of each and every Muslim ... and we cannot at all accept any Israeli violation in Jerusalem or in Muslim sites," Erdogan said.

Italian Prime Minister Silvio Berlusconi, who was likewise invited by Libyan leader Muammar Gaddafi to address the summit, said "now is the time to give peace a chance".

"We have the possibility, we have the responsibility and we feel the urgency," he said.

Berlusconi hoped Israel's hardline Prime Minister Benjamin Netanyahu would "respond to the call made by the international community to improve the living conditions of Palestinians", especially in the Gaza Strip.