Saudi Arabia and Israel are negotiating the establishment of economic ties, The Times reported on Saturday.

The British daily quoted Arab and American sources as saying that the first steps toward ties between two of Iran's staunchest enemies would start small, including allowing Israeli businesses to operate in the Gulf and letting Israel's El Al airline fly over Saudi airspace.

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But it also cited sources close to Saudi Arabia as saying that improved relations between the two countries are nothing more than wishful thinking on the part of the White House in the wake of President Trump's promise to reach the "ultimate" peace deal in the Middle East.

The report said the prospect has caused discord in the Trump administration. Jared Kushner, Trump's adviser and son-in-law, has grown close to Mohammed bin Salman, the Saudi deputy crown prince, and the two have reportedly discussed improved ties with Israel as a step toward Israeli-Palestinian peace. In contrast, Trump's envoy to the Middle East, Jason Greenblatt, is favoring a more traditional approach to the peace process.

According to the report, the Palestinians are opposed to the idea, fearing it would normalize ties between Arab states and Israel without ensuring the establishment of a Palestinian state.

The report suggested that the prospect of relations with Israel may have played a role in Saudi Arabia and its allies' decision to cut ties with Qatar in an effort to pressure the Gulf state to stop supporting Hamas.

In May, The Wall Street Journal reported that the Gulf states have compiled a proposal to take unprecedented steps toward normalization with Israel if the Netanyahu government makes gestures to the Palestinians, such as freezing settlement construction in parts of the West Bank and easing trade restrictions in the Gaza Strip.

Earlier this month, Israeli Defense Minister Avigdor Lieberman said that the diplomatic rift between Qatar and fellow Arab countries in the region opens up opportunities for cooperation. But he also said that linking a solution conflict with the Palestinians and Israel's relations with other Middle East nations is a mistake.

"The Arab countries that cut off their diplomatic relations with Qatar did not do so because of Israel and not because of the Palestinian issue but because of their fear of radical Islamic terrorism," the defense chief said.

"... Any attempt to link the Palestinian issue to Israel's bilateral relations with the moderate Arab states is simply a mistaken approach. The fact is that we signed peace agreements with Egypt and Jordan had nothing to do with the Palestinian issue. There was a connection, but without waiting for a solution. Here too, it is forbidden to condition the development of ties with the moderate Arab states on the resolution of the Palestinian issue."