The faltering Middle East peace talks will resume again in Washington next week, but only if Israel and the Palestinians make progress in the meantime.

Britain and America, frustrated at the lack of progress made at the talks in London over the last two days, insist vital ''interim'' issues must be settled over the next few days or there will be no Stateside summit next week.

If the key players in the conflict can agree a compromise, then they will meet again face-to-face in Washington next Monday, May 11, at a meeting chaired by President Bill Clinton.

Madeleine Albright, the US Secretary of State, yesterday dangled the prospect of a fully-fledged summit there as an incentive for the Israelis and Palestinians to finally get to grips with difficult ''interim'' issues. Key among those is the plan for the Israelis to withdraw partly from land it occupies on the West Bank in return for strengthened Palestinian guarantees to help protect Israel's security.

They have in effect been told to bury their differences or risk American anger.

Mrs Albright made clear that ''the invitation (to Washington next week) is conditional on these interim issues being resolved on the basis of the American ideas''.

If there is progress of the sort which was notably absent in London this week, then the Washington summit would assume the status of ''accelerated permanent status negotiations''. That is diplomatic-speak for the final round of talks intended to settle outstanding issues between the Israelis and Palestinians.

Both Israeli Prime Minister Benjamin Netanyahu and Yasser Arafat, the Palestinian leader, left London yesterday after a hectic round of discussions, brokered by both Tony Blair and Mrs Albright, produced at best minimal progress. Little of substance emerged from their 36 hours of shuttle diplomacy between Number Ten and various West End hotels.

Everyone involved insisted progress had occurred. Putting on a brave face, the Prime Minister told reporters in Downing Street that: ''There is not yet a breakthrough, but there is not breakdown either and there certainly is progress''.

Although both sides have been instructed to engage in constructive dialogue, the real pressure is on the Israelis to compromise their hardline stance on withdrawing from disputed territory in order to facilitate a broader deal. Mrs Albright pointed out that Mr Arafat had already accepted in principle American proposals to break the deadlock. Israel, by contrast, has not.

Observers last night doubted that Israel would pick up the gauntlet thrown down by the Americans. There was speculation that the idea of a Washington summit was conceived to try and disguise the failure of this week's London talks.

However, Mrs Albright conceded that she herself would not handle the talks which America hopes will now take place over the next few days. Instead ''lower level'' officials will attempt to find the key that would unlock the current peace settlement impasse.

Despite that, the Secretary of State underlined America's continued determination to seek lasting peace. ''We are not going to walk away from the peace process'', she said. ''It is too important to the US and Israel and our friends in the Middle East''.

If the final round of talks does occur in Washington next week, it will involve discussion of a long shopping-list of thorny issues such as Palestinian refugees, Jewish settlements in the occupied territories, final boundaries for Israel and the status of the city of Jerusalem. Both sides claim he ancient city as their own capital.

Yesterday's hectic round of talks began at 7am when Mr Blair held an hour-long meeting at Downing Street with Mr Netanyahu. After that Mrs Albright met the Israeli premier for 25 minutes before going to talk to Mr Arafat for some 20 minutes. There were then talks between the Palestinian leader and the Prime Minister.

Soon after, both leaders left Britain. Before leaving, Mr Netanyahu tried to convey an upbeat tone by pledging that Israeli officials would spend the next few days talking to their American counterparts, and that discussions would take place in other ways.

Hinting that he expected the Washington get-together to happen, he said: ''We will continue by other means in the coming days to resolve the difficulties to be able to meet in Washington next week, perhaps to finalise a settlement''.

He said he had spent the previous two days trying to advance the cause of peace, and emphasised that peace in the Middle East was ''imperative''.

Mr Arafat, who had appeared very gloomy during his stay in London, also sought to strike a positive note. ''I cannot say that the London talks failed'', he said. ''I have heard from Madame Albright that there was some progress and time is needed in order to achieve an agreement''.

The Prime Minister also expressed cautious optimism. ''I feel the thing is moving closer together, but one should not be over-optimistic about it''.