By Khaled Yacoub Oweis
DAMASCUS (Reuters) - Saudi Arabia's King Abdullah held talks on Wednesday with President Bashar al-Assad to heal a rift that has aggravated Arab discord over Iran, the Israeli-Palestinian conflict and Lebanon.
Abdullah's visit to Damascus, his first as king, coincides with Syria's emergence from Western isolation as U.S. President Barack Obama seeks its help in his quest for Middle East peace.
Buthaina Shaaban, an adviser to Assad, said the talks were productive and aimed at "strengthening the Arab Islamic position" in the face of what she described as Israeli intransigence.
"Syrian-Saudi ties are seeing excellent progress," Shaaban said, adding that Syria's ties with Iran and Turkey, as well as Saudi Arabia, would help create an effective Islamic block.
Diplomats in Damascus said an understanding between the Syrian and Saudi leaders could help forge a wider Arab stance helpful to Obama's peace efforts, promote formation of a new government in Lebanon, and assuage the fears of Sunni Muslim Arab powers regarding Shi'ite Iran, an ally of Syria.
"Obama needs help, and Syria has leverage over militant groups opposed to his peace proposals," one source said.
Syrian-Saudi ties froze after the 2005 assassination of Saudi-backed Lebanese statesman Rafik al-Hariri, whose allies blamed the killing on Damascus. Syrian denied any involvement.
Assad broke the ice last month when he visited Saudi Arabia and held two hours of talks with Abdullah, but has given no sign that he is willing to sever his alliance with Iran.
"I don't think Saudi Arabia has anything to offer the Syrians to prise them away from Iran," said a Western diplomat in Riyadh, adding that he doubted Riyadh would provide economic assistance on a scale that might influence Syrian policy.
Assad and Abdullah exchanged national medals and signed an agreement to regulate taxation during their meeting.
Syrian businessmen hope that the political improvement between the two countries would encourage Saudi investment into Syria, which has mostly ceased since the Hariri killing.
The visit by the Saudi monarch came in the wake of a series of visits to Damascus by senior Western officials.
Syria, keen to stay on good terms with the West, has indicated it was ready to use its ties with Iran to stabilise the region.
"What Syria can offer on Iran is to make clear that Syria will not be party to any Iranian action against Arab interests," Syrian journalist Thabet Salem said.
"Abdullah will be the one more likely ready to compromise, because Syria is no longer isolated and Iran's position has strengthened after the latest deal with the West," said Salem, referring to last week's nuclear talks in Geneva that resulted in tentative agreements between Tehran and six major powers.
Saudi Arabia, however, feels Syria is in the weaker position, argued Khaled al-Dakhil, a Saudi political analyst.
"The Syrians want the visit at any price to avoid isolation by Arab states," he said. "It also helps to dissipate the general perception that they had a hand in the assassination of Hariri and should pave the way for Hariri's son to visit (Damascus), which would be a major win for them."
Pro-Syrian Lebanese politician Ali Hassan Khalil said the Assad-Abdullah summit would reflect positively in Lebanon, where Hariri's son Saad is prime minister-designate and has tried in vain to form a cabinet since defeating an opposition that include the Shi'ite Hezbollah movement in a parliamentary election in June.
Saudi Arabia, which has its own Shi'ite minority, has long disliked the alliance between Syria and Iran, which both back Hezbollah and the Palestinian Hamas faction. Both groups oppose Obama's peace drive.
Syria's alliance with Iran dates back to the 1980s when it backed the Islamic Republic in its 1980-88 war with Iraq.
"The main thing is that Assad and Abdullah are now talking, which is a breakthrough in itself," a diplomat in the Syrian capital said.
(Additional reporting by Tom Perry in Beirut)