Israel on Tuesday welcomed a shift in the terms of the 2002 Arab Peace Initiative following top-level talks in Washington, with the proposal now endorsing the idea of mutually-agreed land swaps with the Palestinians.
The principle of land swaps has been affirmed by Israel and the Palestinians in previous rounds of talks but has never formed part of the Saudi initiative.
Under the original plan, Arab states would forge full diplomatic relations with the Jewish state in exchange for a withdrawal from land it occupied during the 1967 Six Day War.
Details of the revamped proposal emerged late on Monday following talks between top Arab League members and US Secretary of State John Kerry.
Israel's chief peace negotiator Tzipi Livni hailed the move as "very good news" in an interview with military radio.
"It's definitely an important step -- I welcome it," she said, although there was no immediate response from the office of Israeli Prime Minister Benjamin Netanyahu.
Under terms of the original proposal, the Arab states would offer full diplomatic relations with Israel in exchange for "a total withdrawal by Israel to the June 4, 1967 lines" and the establishment of a Palestinian state.
But Qatari Prime Minister Hamad bin Jassim on Monday said that although a final deal should mean a two-state solution based on the pre-1967 lines, it could involve a "comparable and mutual agreed minor swap of the land" to reflect the realities of the burgeoning communities on the ground.
"The Arab League delegation affirmed that agreement should be based on the two-state solution on the basis of the 4th of June 1967 lines, with the possible of comparable and mutual agreed minor swap of the land," he said at joint press conference with Kerry.
Such a position marks a departure from the original text of the proposal, and comes closer to the US position as laid out by US President Barack Obama in May 2011 that any agreement must be "based on the 1967 lines with mutually-agreed land swaps."
Since taking office on February 1, Kerry has plunged into the maelstrom of the Israeli-Palestinian conflict in the hope of breaking the impasse and seeing a resumption of some form of talks.
He has suggested the Arab Peace Initiative could provide a framework for a future deal.
Speaking to reporters, he hailed Monday's discussion as "very positive, very constructive" and praised the Arab League's "very important role... in bringing about a peace in the Middle East, and specifically by reaffirming the Arab Peace Initiative."
For Israel, the principle of swapping land is a way to hold on to densely-populated Jewish settlement blocs built on occupied Palestinian land.
Although the Palestinians accept the idea of "minor and mutually-agreed land swaps" they have rejected outright any idea of letting Israel hold on to a large swathes of settlements.
Until now, Netanyahu has categorically rejected outright any return to what he has said would be the "indefensible" lines before June 4, 1967, although Livni welcomed the softening of the Arab stance.
"The things that were said last night were very positive," she said. "I hail the Arab League and its representatives who were in Washington over this step."
She said Israel was looking for anything which would break the current stalemate which has persisted since direct talks broke down in September 2010 over a thorny dispute about Israeli settlement building.
"Let's talk about it -- we are ready for changes, something which will allow the Palestinians, I hope, to enter the (negotiating) room and make the necessary compromises," she said.
"It also gives a message to Israeli citizens: it is no longer just us ... talking with the Palestinians, there is a group of Arab states who are saying: you reach an agreement with the Palestinians and we will make peace with you, we will have normalisation with you."
Kerry has already travelled three times to the region and met with top Israeli and Palestinian officials in pursuit of what he has called "a quiet strategy" for reviving the diplomatic process.