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By Dan Williams

JERUSALEM, Dec 26 (Reuters) Israelis are puzzling over the prospect of peace with Syria after their two foreign intelligence agencies gave dramatically different assessments of recent diplomatic overtures from Damascus.

While the Mossad spy service said Syrian President Bashar Assad had no genuine interest in peace talks, Israel's Military Intelligence said it believed Assad was ready to negotiate if this leads to the return of the Israeli-occupied Golan Heights.

Assad has repeatedly signalled an interest in rapprochement since Israel's war in Lebanon with Syrian-backed Hezbollah guerrillas. The situation has been complicated by U.S. charges that Syria supports Iraq insurgents -- something Damascus denies -- as well as Syria's open sponsorship of Palestinian militants.

Past talks have run aground over the Golan, which Israel captured from Syria in a 1967 war. But Syrian Foreign Minister Walid Muallem said in a U.S. newspaper interview this month that new negotiations could be ''without preconditions'' on the Golan.

The messages elicited a mix of hope and suspicion in the Jewish state, stoked by the very government agencies charged with interpreting them.

Mossad chief Meir Dagan last week accused Assad of trying to distract from Western scrutiny on his regional alliances.

''Every time international pressure is applied, Assad puts on the same show of willingness to enter negotiations with us,'' a political source quoted Dagan as telling cabinet ministers. ''But I still don't see Syria offering to resume talks with Israel.'' Yet the chief analyst for Israel's Military Intelligence, Brigadier Yossi Baidatz, took a more upbeat tone.

''Syria is interested. Its overtures, predicated on the overall objective of recovering all of the Golan Heights, are genuine,'' Baidatz told Israeli lawmakers yesterday, according to an official account of the briefing.

POWER AND PERSONALITIES The conflicting attitudes made headlines in Israel and drew exasperated critiques from some seasoned ex-spies.

''Maybe we should get the Mossad and Military Intelligence chiefs together in a room, so they can reach agreement?'' said Danny Yatom, a retired army general and former Mossad director.

While Mossad and Military Intelligence differ in tradecraft -- the former favouring ''human intelligence'', or well-placed informants, while the latter has relied more on electronic eavesdropping -- a veteran of both agencies suggested the disagreement over Syria came down to views about the future.

''I suspect what we have here is a dispute between strong personalities on whether Assad is strong enough domestically to deliver a peace deal that will last,'' said retired intelligence analyst Matti Steinberg.

Prime Minister Ehud Olmert, seeking a new diplomatic plan since the Lebanon war and renewed fighting in Gaza put paid to his vision of unilaterally quitting some of the land where Palestinians want a state, appears for now to side with Dagan.

''If Syria agrees to stop the violence, to stop supporting Hamas, to stop supporting Hezbollah, to sever its terrible links to Iran -- then I have no doubt that it would be possible to begin a diplomatic process with it,'' Olmert said yesterday.

''I expect of President Assad that he not just make bombastic statements ... but that he also do something in the direction of the real diplomatic process that we would all like to see.'' But it remains unclear how far Israel, which annexed the Golan in 1981 -- a move not recognised abroad -- would go to accommodate Syria's demand for the territory's ultimate return.

A poll published by the best-selling Yedioth Ahronoth newspaper over the weekend found that while 67 per cent of Israelis think the Olmert government should respond to Syria's peace overtures, an almost equal number -- 66 per cent -- would be opposed to giving up the Golan under a future peace accord.

REUTERS MS HT1800

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