Israeli Premier Ehud Olmert and Palestinian President Mahmoud Abbas held talks for about two hours on Sunday evening in Jerusalem in their third meeting since December 24.
The leaders as well as their delegations attended the first part of the meeting, before the two continued discussions in private. Olmert and Abbas agreed to continue to meet regularly.
Prior to the meeting, aides said the talks were simply aimed at keeping open their communication channels.
An Israeli government official said the meeting was "positive and constructive", while senior Fatah member Mohammed Dahlan, who participated in the session, said it was "difficult and open".
After the meeting, Palestinian chief negotiator Saeb Erekat said in a news conference in Ramallah that it was "frank, in depth and positive". He noted that several difficulties and controversial points were raised.
During the meeting, Olmert demanded the release of captured Israeli soldier Gilad Shalit being held by militant groups in Gaza.
Abbas promised that Shalit would be released soon, before the formation of a new Palestinian unity government, according to an Israeli official.
The Palestinian side also raised the matter of Palestinian prisoners, including several lawmakers, in Israeli jails.
Abu Mujahed, spokesperson for the Popular Resistance Committees, one of the groups involved in the June 25 cross-border raid in which Shalit was captured, said Sunday night that the soldier would not be released until the group's demands are met, including the release of prisoners.
Olmert told Abbas that the Karni Crossing, the main commercial crossing between Israel and the Gaza Strip, would have longer operating hours and would work at maximum capacity.
He told Abbas that the Israeli government would not recognise a Palestinian Authority whose members do not accept the three conditions of the Mideast Quartet - the US, European Union, Russia and the UN - for renouncing violence, recognising Israel and respecting previous agreements.
Hamas, which will have the largest number of ministers in the unity government, has refused these demands.
In the meeting, Abbas raised the matter of the 2002 Saudi-led Arab League peace proposal as a basis for negotiation. Earlier Sunday, Olmert said that Israel does not entirely reject the proposal, which calls for Arab recognition of the Jewish state in return of withdrawal from territories occupied in the 1967 war.