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By Aziz El Yaakoubi and Parisa Hafezi
RIYADH (Reuters) - Saudi Arabia is putting U.S.-backed plans to normalise ties with Israel on ice, two sources familiar with Riyadh's thinking said, signalling a rapid rethinking of its foreign policy priorities as war escalates between Israel and Palestinian group Hamas.
The conflict has also pushed the kingdom to engage with Iran. Saudi Crown Prince Mohammed bin Salman took his first phone call from Iranian President Ebrahim Raisi as Riyadh tries to prevent a broader surge in violence across the region.
The two sources told Reuters there would be a delay in the U.S.-backed talks on normalisation with Israel that was a key step for the kingdom to secure what Riyadh considers the real prize of a U.S. defence pact in exchange.
Until Iran-backed Hamas sparked a war on Oct. 7 by launching a devastating attack on Israel, both Israeli and Saudi leaders had been saying they were moving steadily towards a deal that could have reshaped the Middle East.
Saudi Arabia, birthplace of Islam and home to its two holiest sites, had until the latest conflict indicated it would not allow its pursuit of a U.S. defence pact be derailed even if Israel did not offer significant concessions to the Palestinians in the their bid for statehood, sources had previously said.
But an approach that sidelined Palestinians would risk angering Arabs around the region, as Arab news outlets broadcast images of Palestinians killed in Israeli retaliatory airstrikes.
Hamas fighters killed more than 1,300 Israelis in their Oct. 7 attack and more than 1,500 had been killed by Friday in Israel's ongoing strikes on Gaza in response.
The first source familiar with Riyadh's thinking said talks could not be continued for now and the issue of Israeli concessions for the Palestinians would need to be a bigger priority when discussions resumed - a comment that indicates Riyadh has not abandoned the idea.
The Saudi government did not respond to emailed requests for comment on this article.
'CONSIDERED TABOO'
The Saudi rethink highlights challenges facing Washington's efforts to deepen Israel’s integration in a region where the Palestinian cause remains a major Arab concern.
"Normalisation was already considered taboo (in the Arab world) ... this war only amplifies that," Saudi analyst Aziz Alghashian said.
Washington wants to build on the Abraham Accords when Gulf states, including the United Arab Emirates, normalised ties.
U.S. National Security advisor Jake Sullivan told a White House briefing this week that the normalisation effort was "not on hold" but said the focus was on other immediate challenges.
The first source familiar with Saudi thinking said Washington had pressed Riyadh this week to condemn the Hamas attack but said Saudi Foreign Minister Prince Faisal bin Farhan pushed back. A U.S. source familiar with the issue confirmed this.
The regional conflict has also prompted the Saudi crown prince and Iran's president to speak for the first time after a Chinese-brokered initiative prompted the Gulf rivals to re-establish diplomatic ties in April.
A Saudi statement said the crown prince told Raisi "the kingdom is exerting maximum effort to engage with all international and regional parties to halt the ongoing escalation", underling Riyadh's move to contain the crisis.
A senior Iranian official told Reuters the call, made by Raisi to the crown prince, aimed to support "Palestine and prevent the spread of war in the region".
"The call was good and promising," the official said.
A second Iranian official said the call lasted 45 minutes and had the blessing of Supreme Leader Ayatollah Ali Khamenei.
DE-ESCALATING TENSIONS
The Saudi government did not provide further details on the call but the statement said the crown prince stated the kingdom's "opposition to any form of civilian targeting and the loss of innocent lives" and expressed Riyadh's "unwavering stance in standing up for the Palestinian cause".
Saudi Arabia has been seeking to ease tensions elsewhere in the Middle East, including seeking to end a conflict Yemen, where Riyadh has led a military coalition in a war against the Iran-aligned Houthis.
Asked about Raisi's call with the crown prince, a senior U.S. State Department official said Washington was in "constant contact with Saudi leaders". U.S. Secretary of State Antony Blinken has held several calls with his Saudi counterpart.
The official said Washington was asking partners with channels to Hamas, Hezbollah - a Lebanese armed group aligned with Tehran that fought a war with Israel in 2006 - or Iran "to get Hamas to stand down from its attacks, to release hostages, keep Hezbollah out (and) keep Iran out of the fray."
The first source familiar with Saudi thinking said Gulf states, including those with Israeli ties, were worried Iran could be drawn into a conflict that would affect them.
Alex Vatanka, director of the Iran Program at the Middle East Institute in Washington, said the last week showed how the Saudi and Iranian visions for the region diverged.
"The Saudis are still convinced the region, and Saudi Arabia itself, needs to shift toward regional cooperation and economic development. Iran seems to think the priority is to take the fight to the Israelis first," he said.
(Reporting by Aziz El Yaakoubi and Parisa Hafezi; Additional reporting by Matt Spetalnick in Washington and Humeyra Pamuk; Writing by Tom Perry; Editing by Michael Georgy and Edmund Blair)
