Israel is in the middle of negotiating a peace agreement with the Palestinians that could be concluded by the end of the year, Israeli Prime Minister Ehud Olmert told Prime Minister Yasuo Fukuda on Wednesday.

"We regard highly and support the efforts undergone by Prime Minister Olmert along with President (Mahmoud) Abbas of the Palestinian Authority toward realizing Middle Eastern peace," Fukuda told reporters after meeting with Olmert, the first Israeli prime minister to visit Japan in 11 years.

Tensions are high in the Middle East following the assassination of Imad Mughniyeh in Damascus earlier this month. Mughniyeh, who was a senior member of Hezbollah, was suspected of leading many of the Islamic fundamentalist group's terrorist attacks on Americans, Israelis and other people for decades.

Olmert will leave Japan on Thursday.

"I thank (Fukuda) for the important projects which Japan (promoted) in our part of the world as part of a peace process, particularly the 'Corridor for Peace and Prosperity' between us, the Palestinians and Jordan," Olmert said.

The corridor was first proposed in July 2006 by then Prime Minister Junichiro Koizumi during his Middle East visit.

The aim of the project is to help build peace between Israel and Palestine through economic development.

Under the initiative, Japan plans to promote projects that include establishing an agro-industrial park on the West Bank and facilitating the transportation of goods, the Foreign Ministry said.

Israel is observing the 60th anniversary of its independence this year.