The Israeli official believes Syria's President Bashar Assad is increasingly open to a deal that would greatly weaken Iranian influence in the region.

Additionally, the London paper cites a former director of Israel's foreign ministry as saying that "the prospect of a peace agreement with Syria was growing."

Alon Liel, however thinks that no deal is likely to go through before the election of a new president in the United States. The U.S. administration of George W. Bush has long been reluctant to bring Damascus out of the cold since it accused the Assad government of supporting terrorism, facilitating the transit through its territory of anti-coalition forces into Iraq and of gross interference in internal Lebanese affairs.

At the center of any peace deal between Israel and Syria rests the future of the occupied Golan Heights, captured by Israel in the June 1967 war. Damascus demands the return of the entire Golan Plateau, while Jerusalem hopes to turn the area into a demilitarized zone, from which both countries could profit. Israel has turned the Golan into the source of a profitable wine making industry.

Track-two talks between Israel and Syria have been taking place despite Washington's disinclination thanks to mediation by Ankara, which enjoys cordial relations with both countries.

Despite U.S. reluctance, a rapprochement between Damascus and Washington would not only distance Iran from Syria – and the rest of the region's politics – but also would result in Syria curbing its support to the Lebanese Shiite movement Hezbollah.

The first sign of a thaw in icy relations between Syria and the West was manifested by the invitation extended to Assad by French President Nicolas Sarkozy to attend the July 14 – Bastille Day – celebrations in the French capital.

Prior to the traditional military parade on the famous Champs Elysees where the Syrian president will be a guest of honor, Assad will be joining other leaders of the Mediterranean basin to kick off Sarkozy's pet project – the Union for the Mediterranean – in which Israeli leaders are also expected to attend.

"With the Syrians, we are talking seriously and in my estimation very soon the negotiations will have to be direct. They will not be able to continue in the mode in which they are currently being held," Olmert was quoted in the Sunday Telegraph.

The Syrian foreign minister, Walid Muallem, however said such a meeting would be "premature" but he has not ruled it out, according to the paper.