Secretary of State James Baker will confer next week with President Bush about Middle East peace prospects and the administration is expected to press on with efforts to bridge Israeli and Arab differences despite signs neither side is ready for crucial compromises.

Baker, who returned early Saturday from his third shuttle mission to the region since the end of the Persian Gulf war, is trying to arrange a peace conference that would lead to direct talks between the parties.Israeli officials told the secretary of state in Jerusalem they cannot accept United Nations co-sponsorship of a peace conference, fearing peace terms would be imposed on the Jewish state. But they agreed reluctantly that European countries can attend the proposed peace talks.

Syria is demanding a significant U.N. role at the conference.

Jerusalem also said it is willing to have the Soviets co-sponsor the talks, provided the Kremlin resumes full diplomatic relations with Israel. The ties were cut during the 1967 Middle East War.

Soviet Foreign Minister Alexandr Bessmertnykh, who met Baker in the Russian resort town of Kislovodks, said publicly for the first time his country would co-sponsor such a conference. He will travel to the region next month, a trip that could result in re-establishing relations between Moscow and Jerusalem.

"Restoring ties is the last card the Soviets have with us," an Israeli official told United Press International. "That and letting the Jews leave. They cannot stop the flow and we expect a million Soviet Jews to come to Israel."