Foreign Minister Tzipi Livni on Monday said the current visit by Quartet envoy Tony Blair to the region was of great significance, and called his mission - to strengthen the Palestinian economy and government - an important step toward Palestinian statehood.

"This is a critical point that can create a breakthrough," she said following talks with the former British prime minister in Jerusalem.

Blair arrived in Israel on Monday for his first visit as the special envoy of the Quartet - the United States, United Nations, Russia and the European Union. The two met for an hour and a half, speaking alone for an hour.

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"The path to a Palestinian state goes through their own war on terror, as well as the construction of stable infrastructure for a responsible state that is run by a government that accepts the international community's conditions, and can control its own territory and prevent it from becoming a danger source for Israel," Livni said after the meeting.

Livni told Blair that such a process would be "in the entire region's interest, as well as [in the interest of] all moderate factors that are standing up to the threat of the extremists, which takes different forms in different places."

She emphasized that the international community must simultaneously "distinguish between the moderates and the extremists, take a firm stance on Hamas and not give the organization any legitimacy - direct or indirect - as long as they do not fully comply with the three conditions of recognizing Israel, halting the violence, and recognizing previous agreements."

Blair also met with Vice Premier Haim Ramon, who told him that the time has come to renew the peace process, after a long period in which it was stalled due to Hamas' rise to power. "I am convinced that the prime minister will do this [renew talks] in the near future," Ramon said.

Later, Blair held talks with Defense Minister Ehud Barak. He is scheduled to meet with opposition leader Benjamin Netanyahu of Likud and President Shimon Peres on Tuesday.

Blair himself has asked to keep a low profile on these meetings, and will only issue a statement to the press following his meeting with Peres.

His spokesman, however, issued a brief statement after the meeting with Livni.

"This is a preliminary visit to hear the views of key Israelis and Palestinians about the issues that have to be addressed in order to fulfil the demanding mandate Mr. Blair has taken on," the spokesman said.

"Mr. Blair will also have the chance to hear from a number of important Arab leaders their views on the situation and consider with them how best we can jointly make progress," he added.

Blair will also travel to Ramallah on Tuesday, where he will meet with Abbas and Prime Minister Salam Fayad.

Later Tuesday, he will dine with Prime Minister Ehud Olmert, and leave Israel on Wednesday morning.

Blair is accompanied by a small number of aides, as he is still building his team, which sources estimate will not exceed 20 people representing the Quartet.

Hamas: We'll talk to Blair, but not to Israel
Earlier Monday, Hamas told the British newspaper The Times that it would be willing to talk to Blair, but not with the Israeli government.

"We won't say no to anyone, including Tony Blair," Hamas spokesman Sami Abu Zuhri Zuhri said. "We are willing to maintain ties with anyone as long as it isn't the occupier."

Hamas responded with outrage when Blair was appointed in late June by the Quartet as their special envoy.

Last week, Hamas warned Blair not to ignore the group, and maintained that marginalizing Hamas would erode his credibility in his new position.

Meanwhile, senior political sources in Jerusalem say he will begin studying the Palestinian Authority's situation before starting his official mandate of helping the Palestinians build institutions of state.

Political sources in Jerusalem said Sunday that Blair is expected to stray from his mandate and try to further diplomatic talks between Israel and the Palestinians.

Sources in the Foreign Ministry say that Blair is unlikely to deal with "technical" matters - building institutions and mobilizing the support of donor countries - and will focus on furthering the diplomatic process.

"From this point of view, Israel is less enthusiastic," a political source in Jerusalem said Sunday.

His spokesman described a meeting in Amman with Jordanian Foreign Minister Abdelelah Al-Khatib as "positive" before Blair flew on to Tel Aviv.