The Muslim world is watching how the United States will act on the stalled process for Palestinian-Israeli peace and wondering how one of the main sticking points, Israeli settlements, will be resolved, said the world's top diplomat for Islam.

Arab discontent over statements from Washington seen as favouring Israel culminated this week when Palestinian President Mahmoud Abbas said he did not want to run in an upcoming poll, citing disappointment with US President Barack Obama.

Abbas' frustration with Obama centred on the US administration backing away from support for demands for a 'freeze' on Israel settlement building in the occupied West Bank and an endorsement of Israel's view that settlement expansion should not be a bar to resuming peace talks.

'We would like to keep our hopes that President Obama's commitments and good intentions will translate to reality, but of course we've found that the whole negotiation comes back to square one,' said Ekmeleddin Ihsanoglu, secretary general of the Organisation of the Islamic Conference (OIC).

The 57-nation OIC, based in Jeddah, Saudi Arabia, was set up in the early 1970s when Islamic nations were divided along Cold War lines. While the body has no direct political power it represents more than one billion Muslims.

'The sine qua non for any negotiation is the stopping of the settlements ... We are still hopeful despite the fact that there are more reasons not to be hopeful,'  Ihsanoglu told Reuters.

Israeli Prime Minister Benjamin Netanyahu has refused to halt construction in the settlements, many of which the Jewish state plans to annex under any eventual peace accord.

Palestinian elections are scheduled for January 24, though few are anxious to take on Abbas' role, throwing into doubt the reconciliation of fighting Palestinian factions as well as the peace process with Israel.

Ihsanoglu, a Turkish history professor who became OIC secretary general in 2005, spoke ahead of an economic summit that has drawn criticism from human rights organisations for hosting Sudan President Omar Hassan al-Bashir, who is facing an international arrest warrant for war crimes.

Palestinian Prime Minister Salam Fayyad, Syria's President Bashar al-Assad and Iranian President Mahmoud Ahmadinejad are also expected to arrive to Istanbul on Sunday for the summit, which is expected to focus on boosting economic alliances among OIC member countries.

The one-day summit's guest list has added to concerns that European Union candidate Turkey, an important regional ally of Washington, is shifting away from its pro-Western foreign policy, while distancing itself from traditional ally Israel.

Ihsanoglu rejected claims predominantly Muslim Turkey with was drifting away from its western allies. 'I don't see Turkey's strengthening its relations with its neighbours or the OIC countries at large as a substitute for its relations with other countries, including European countries, or the West,' said Ihsanoglu.-Reuters