JERUSALEM - Israel on Wednesday rejected demands from visiting U.N. Secretary-General Kofi Annan that it immediately lift its sea and air blockade of Lebanon and withdraw its forces once 5,000 international troops are deployed.

Israeli Deputy Premier Shimon Peres(L) listens to United Nations Secretary General Kofi Annan as they meet in Annan's Jerusalem hotel. Annan urged Israel to end its crippling blockade of war-devastated Lebanon, but failed to extract any public promise for an immediate halt to the near seven-week siege. [AFP]

Prime Minister Ehud Olmert indicated Israel would only allow free movement after the full implementation of a U.N.-brokered cease-fire that ended 34 days of fighting between Israel and Lebanon's Hezbollah guerrillas that killed 854 Lebanese and 159 Israelis.

Under the truce, 15,000 Lebanese soldiers and 15,000 international troops are to be deployed in southern Lebanon and to enforce an arms embargo on Hezbollah.

Olmert, Annan and Israeli Foreign Minister Tzipi Livni all expressed hope Wednesday that the cease-fire deal would evolve into a full-fledged peace accord, which Israeli leaders have long hoped to reach with Lebanon. But Lebanon's premier rebuffed the idea, saying his country would be the last Arab nation to make peace with the Jewish state.

The vastly different visions of future relations between the two nations reflect their conflicting priorities. Israel wants to prevent future attacks from its northern neighbor, while Lebanon is focused on rebuilding from the recent fighting and trying to maintain peace between its fractious religious groups, some of whom are sworn enemies of Israel.

The cease-fire deal could be "a cornerstone to build a new reality between Israel and Lebanon," Olmert said at a news conference with Annan.

Implementation of the truce "gives us a foundation to move forward and settle the differences between Israel and Lebanon once and for all, to establish a durable peace," Annan said after meeting with Livni.

But Lebanon has hesitated in reaching a separate agreement with Israel as long as Israel's conflicts with the Palestinians and Syria are not resolved.

Lebanese Prime Minister Fuad Saniora quashed hopes of a peace deal any time soon, saying Lebanon "will be the last Arab country that could sign a peace agreement with Israel."

"Let it be clear, we are not seeking any agreement until there is just and comprehensive peace based on the Arab initiative," he said in Beirut.

The Arab initiative calls for an Israeli withdrawal from all territories captured in the 1967 Middle East war and the establishment of a Palestinian state with east Jerusalem as its capital ¡ª demands Israel rejects.

A Hezbollah legislator also ruled out talks toward a wider peace deal.

"The Lebanese reject negotiations with the Zionist enemy. They consider these negotiations unnecessary, worthless and have no basis or place," Hussein Haj Hassan told Al-Jazeera television.

The fighting between Israel and Hezbollah began July 12 when Hezbollah guerrillas crossed into Israel and attacked an army patrol, killing three soldiers and capturing two others. Israel has rejected calls for a prisoner swap to secure their freedom.

Both Annan and Olmert demanded the soldiers' unconditional release, but Mohammed Fneish, a Hezbollah minister in the Lebanese Cabinet, said that would not happen.

"There will be no unconditional release. This is not possible," he said. "There should be a (prisoner) exchange through indirect negotiations."

A third Israeli soldier, Cpl. Gilad Shalit, was seized by Hamas militants in late June and is being held in the Gaza Strip. His capture touched off a 2-month-old Israeli military offensive in Gaza.

Annan said he would do everything in his power to win the soldiers' release. He said that during his visit to Lebanon, which ended Tuesday, he discussed their fate. "I did not get the impression that they are not alive. I believe they are alive," he said.

Annan also called on Olmert to end the blockade of Lebanon, which is preventing the country from rebuilding. Lifting the blockade would also strengthen Lebanon's government.

"I do believe the blockade should be lifted," he said at a news conference with Olmert.

Israel has said it would lift the blockade when international forces, along with Lebanese troops, are deployed on Lebanon's border with Syria to prevent the flow of weapons to Hezbollah from its Syrian and Iranian patrons.

Syria has said it would consider the presence of international troops on its border a hostile act, and Lebanon has said it would secure the border itself.

Annan said Lebanese authorities assured him they were serious about enforcing the arms embargo on Hezbollah.

"We need to be flexible, because I don't think there's ever only one way of solving a problem. We shouldn't insist that the only way to do it is by deploying international forces," Annan said.

Asked by reporters whether Israel would lift the blockade, Olmert was evasive, saying only that Israel wanted a full implementation of the cease-fire.

Annan also said he was working to expand the international force in Lebanon "as rapidly as possible" and to quickly double its current number to 5,000.

"We hope that as we do that, the Israeli withdrawal (from Lebanon) will continue and by the time we are at that level, Israel will have fully withdrawn," Annan said.

While Olmert said Israel hoped to leave Lebanon "as soon as possible," he did not embrace Annan's proposal.

"It isn't on one day the 5,000 come in and on one day all the Israelis depart," Israeli government spokeswoman Miri Eisin explained later. "It's something in between, and it's something that has to be ironed out, and it is being ironed out."

In a meeting later with Palestinian President Mahmoud Abbas, Annan said Israel also must lift its closure of the Gaza Strip and open crossing points there. He called for an end to the bloodshed that has killed more than 200 Palestinians since the end of June.