Seeking to break a 16-month deadlock, Israel and the Palestinians held their first high-level talks in months on Sunday, hours after police foiled what they said was an attempted car bombing in Jerusalem.

A Palestinian man described by police as a known Hamas activist was arrested in the failed attack, in which he suffered serious burns. No one else was injured, and authorities did not say how the man was burned.The incident created a tense backdrop for the evening talks by Israeli Defense Minister Yitzhak Mordechai and Yasser Arafat's deputy Mahmoud Abbas.

None of the participants - who also included chief Palestinian negotiator Saeb Erekat and Yitzhak Molcho, a senior aide to Prime Minister Benjamin Netanyahu - made statements as they headed into the negotiating session at a Tel Aviv hotel.

Beforehand, the Palestinians signaled their low expectations. Palestinian Cabinet minister Nabil Shaath said he thought the meeting had only a "very, very limited chance" of success.

"But for a chance of one percent we will go because we don't want to be told that we have wasted an opportunity," Shaath, the planning minister, told reporters in the West Bank town of Ramallah.

In Jerusalem, Netanyahu said Israel was coming to the talks with "an open mind and a desire to achieve an agreement."

"I call on the Palestinian Authority to engage with us continually, day and night, in negotiations, including at the highest levels," he said. The prime minister told reporters he did not rule out a meeting later with Arafat.

Earlier in the day, Netanyahu separately told his Cabinet and visiting Jordanian Foreign Minister Jawad Anani that he was determined to reach an agreement with the Palestinians, and soon.

The talks were being held at the urging of the United States, which called on Israel and the Palestinians to negotiate directly to resolve differences over a U.S. initiative calling for Israel to withdraw from another 13 percent of the West Bank.

Israel has so far balked, citing security concerns - concerns that Netanyahu said were underscored by Sunday's attempted attack in the center of Jerusalem.

Police spokesman Shmuel Ben-Ruby said the bombing was thwarted when an off-duty Jerusalem policeman and a bus driver saw smoke coming from a white van with front and back license plates that did not match.

They smashed its windows, pulled out the burned driver and called for help. Anti-terrorist police quickly arrived and determined it was a car bomb, said Jerusalem police chief Yair Yitzhaki.

Police said the van contained 160 gallons of flammable fluid in plastic containers. Yitzhaki said the material was capable of causing considerable damage and casualties.

"A terrible tragedy was averted," he said.

Police said the driver - who had been previously jailed for being a member of a "hostile organization" - was hospitalized under heavy police guard with serious burns. His brother was arrested Sunday, Israel radio reported.

Members of the man's family, who live in the Al-Amari refugee camp outside the West Bank town of Ramallah, said they knew nothing of his activities on Sunday.

Jerusalem police remained on high alert in the wake of the failed attack, said spokeswoman Linda Menuhin, and authorities appealed for public vigilance.

"I ask Jerusalemites to be on alert. It's critical," the police chief said.

A half-mile stretch of Jerusalem's main downtown thoroughfare and part of a downtown pedestrian mall were closed for three hours while the bomb squad dismantled the explosives.

Traffic backed up, large crowds milled behind the police barricades, and scores of stores and restaurants were closed. Sunday is a regular business day in Israel.

Army radio said Palestinian security forces were cooperating in the investigation.

The attempted attack came almost a year after a pair of suicide bombings in downtown Jerusalem that killed 25 people, including the five bombers.

Peace talks between the two sides broke off in March 1997 after Israel broke ground on a housing project in disputed east Jerusalem.