DUBAI, March 9 (Reuters) - Syria President Bashar al-Assad said in an interview published on Monday that a peace deal with Israel was possible but that normal relations would only be possible if Israel ended its conflict with the Palestinians.

"There will perhaps be an embassy and formalities, but if you want peace then it has to be comprehensive. We give them the choice between comprehensive peace and a peace agreement which does not have any real value on the ground," al-Assad was quoted as saying in the United Arab Emirates daily al-Khaleej.

"There is a difference between a peace agreement and peace itself. A peace agreement is a piece of paper you sign. This does not mean trade and normal relations, or borders, or otherwise," he said.

"Our people will not accept that, especially since there are half a million Palestinians in our country whose position remains unresolved. It is impossible under these terms to have peace in the natural sense."

Syria and Israel held indirect talks last year under Turkish mediation. Talks focused on the Golan Heights which Israel captured in a 1967 Middle East war and on Syria's relationship with Iran, Hamas and the Lebanese Hezbollah group.

Syria is demanding that Israel commits to a withdrawal of Israeli troops from the Golan.

The indirect talks, put on hold due to the resignation of the Israeli Prime Minister Ehud Olmert in September, were disrupted further after the recent Israeli war in Gaza.

U.S. Senator John Kerry, chairman of the U.S. Senate Foreign Relations Committee, said after a meeting with Assad in Damascus last month that Syria was prepared to resume the talks but wanted U.S. participation.

Assad said it was in the Palestinians' interests to coordinate with Damascus over its peace talks with Israel to avoid Israel putting off a resolution with the Palestinians.

"We believe that if Israel signs (a peace agreement) with Syria, Israel will put away the Palestinian question," he said.

Egypt was the first Arab country to sign a peace treaty with Israel but it is often described as a cold peace since relations extend little beyond official government contacts. (Reporting by Asma al-Sharif, editing by Andrew Hammond and Jon Boyle)