It rejected an Israeli suggestion that the bilateral negotiations be held in the Middle East, rather than in Madrid or another neutral venue.

But Saudi Arabia, which wields influence as the financial mainstay of many smaller Arab states including Syria, is in favor of moving rapidly to end Israel's isolation, the sources said. Morocco is also in favor of regional discussions.

The disagreement could weaken the Arabs' position if it is not resolved before the conference and might even provide an opportunity for Israel to establish relations separately with some of the Arab states.

Morocco's foreign minister, Abdellatif Filali, and his Saudi counterpart, Prince Saud al-Faisal, were present at yesterday's meeting. Prince Saud represented the six-nation Gulf Cooperation Council.

The duration of the Damascus gathering was left open. But Arab diplomats said that if the ministers fail to agree on a unified stand by Friday, Israel's five neighbors' heads of state will hold a summit before the Madrid peace conference opens.

The Palestinians will be represented by 14 negotiators in a joint delegation with Jordan, but they are also expected to coordinate closely with the PLO.

Israeli unease over the PLO undertone in the Palestinian delegation was apparent what motivated Shamir to step into the command of his delegation.

This concern was reinforced last night when delegate Saeb Erekat, in a CNN interview broadcast on Israel radio, said: "We are the PLO delegation. This delegation was chosen by the PLO ... so if Mr. Shamir wants to deceive himself, I can't help him at all."