Amid verbal clashes between British and Israeli foreign ministers, Downing Street has admitted it may be forced to abandon its plans for a Middle East peace conference.

The official spokesman accepted on Monday that a travel ban on members of the Palestinian Authority enforced by Israel could scupper the London conference, which had been set for the middle of January.

"Obviously if there is a ban on the Palestinian Authority a judgement will have to be taken about the usefulness of such a conference going ahead," said Number 10.

The ban was imposed following a suicide bombing which killed 23 people and two terrorists on Sunday.

The announcement was made by a close aide of Israel's prime minister, Ariel Sharon.

The decision to block Palestinian delegates from attending the conference apparently prompted sharp exchanges between the British foreign secretary and his Israeli opposite number.

The Israeli embassy took the unusual step of publishing a transcript of a telephone conversation between the two men.

According to the transcript, Benjamin Netanyahu told Jack Straw that the latest suicide bombings ruled out any chance of business as usual.

He called on Britain to adopt the same position as US president George W Bush "that leaders compromised by terror cannot be partners for peace".

"You in Britain are doing the exact opposite," Netanyahu is said to have claimed.

Straw apparently replied: "No, it is Israel that is doing the opposite. Instead of concentrating on dealing with terrorism, it is striking at [Palestinian] delegates."

There was speculation that Israel's right-wing Likud government moved to hit back at Britain after Tony Blair's decision to hold a Downing Street meeting with the leader of Israel's opposition Labour Party, Amram Mitzna, on Thursday.

The meeting is reported to have angered senior Likud figures, coming as it does in the run up to the Israeli general election on January 28.

Mitzna has pledged to reopen talks with the Palestinians if he wins the election, but polls suggest he is trailing Ariel Sharon despite economic problems and a Likud bribery scandal.

Earlier, Downing Street sought to talk down the conference, which had been announced by the prime minister before Christmas as a key part of his Middle East strategy.

The official spokesman said the conference was "modest in ambition" and was designed to bring some "structural support" to the Palestinian Authority so it could function if any progress towards a final status deal was achieved.

"These are simple steps that could make a difference," said the spokesman.

There was no expectation from the government that Yasser Arafat would have attended, but Number 10 confirmed that the conference had the support of the US government.

Downing Street confirmed that foreign secretary Jack Straw had spoken to his Israeli counterpart Benjamin Netanyahu on Monday morning to discuss the ban.

"This announcement, we hope, is not their final decision," said Number 10.