Israel will keep refusing to negotiate on the basis of a total withdrawal from land it seized during the 1967 Six-Day War, a minister said Wednesday after the Arab League modified its peace plan.

"If Israel agrees to come to the negotiating table while accepting in advance that talks would be held on the basis of the 1967 lines, there wouldn't be very much to negotiate about," said Gilad Erdan, a minister in the security cabinet and considered close to Prime Minister Benjamin Netanyahu.

"We cannot start negotiations after agreeing in advance to give up everything," he told public radio.

His remarks came a day after the Arab League moderated the terms of its 2002 peace initiative.

The initiative will now incorporate the principle of mutual land swaps in the context of an Israeli withdrawal to the 1967 lines, in exchange for full diplomatic ties with the Arab world.

Netanyahu has so far categorically rejected outright any return to the "indefensible" lines which existed before June 4, 1967.

"I hope that Abu Mazen doesn't think that Israel will give up its positions and agree to hand over all the land where we believe we have a right to settle," said Erdan, referring to Palestinian president Mahmud Abbas.

Israel hopes the principle of land swaps will allow it to retain the large blocs where most of the settlers live, while the Palestinians would be compensated by receiving territory currently under Israeli sovereignty.

The Arab League's acceptance of land swaps was welcomed by Israel's chief peace negotiator Tzipi Livni, but won a decidedly tepid response from a government official, who said specific positions would be unveiled only "when the negotiations start."

Palestinian negotiator Saeb Erakat also played down the significance of the move, saying it was merely a statement of the official Palestinian position which accepts the principle of "minor agreed border modifications."

US Secretary of State John Kerry, who is currently engaged in efforts to relaunch the stalled peace talks, believes the Arab Peace Initiative could provide a framework for a future peace deal.

Speaking on Tuesday, he hailed the move as "a very big step forward."

Israel's opposition leader Shelly Yachimovich hailed the Arab League decision as "important" and said it could "allow a restart of negotiations".

She also said that her Labour party would consider entering government if any of the more hardline coalition partners, such as Jewish Home which opposes a Palestinian state, threatened to bolt over a renewal of serious talks.

"If we get close to an agreement and Jewish Home threatens to leave Benjamin Netanyahu's government, we would positively consider the possibility of taking its place," she told public radio.

"Labour is not going to be the one blocking an agreement," she added.