JERUSALEM, Jan 28 (Crispian Balmer/Reuters) - A flood of secret documents leaked this week suggests the Palestinians and Israelis came tantilising close to a peace deal in 2008, but the chances of narrowing the divide now look beyond reach.

The release of 1,600 highly-confidential papers by the Al-Jazeera news channel laid bare more than a decade of Middle East diplomacy and showed the Palestinians were ready to make bigger concessions than they had admitted to in public.

The distance between the two sides on core issues like the borders of a future Palestinian state, the right to return for refugees and the status of Jerusalem appeared to narrow during a succession of meetings in 2008.

But that was another era and the mood is very different now.

Ehud Olmert, the Israeli prime minister at that time, has been replaced by the more uncompromising Benjamin Netanyhu; the United States has adopted a different negotiating stance and the faction-riven Palestinians have hardened their own position.

Maybe there was a bridgeable gap in 2008, but it is not bridgeable any more, said Alon Liel, a former director-general of Israeli Foreign Ministry.

Under the existing circumstances I don't see anything happening. You have a right-wing government in Israel, ideological rifts amongst the Palestinians and a U.S. administration that has lost its credibility.

The Al-Jazeera leak has only worsened the atmosphere.

Palestinian President Mahmoud Abbas has been denounced in parts of the Arab world for his 2008 concessions, making it very unlikely that he will be ready to offer up the sort of ground that Israel says is still necessary to sew up an accord.

In addition, the leaks have deepened divisions between his Palestinian Authority, which governs in the occupied West Bank, and the Islamic group Hamas, which rules in the Palestinian enclave Gaza and has never endorsed direct negotiations.

LOSING TRUST

On paper, the Al Jazeera documents contained nothing very surprising to people who had followed the issue for years.

Everyone knew that if the Palestinians wanted their own state they would have to let Israel keep hold of most, if not all, the Jewish urban settlements it has built up around Jerusalem on land seized in a 1967 Middle East war.

It was also obvious that, just as Abbas concedes in the leaks, very few of the several million Palestinian refugees and their descendents would be able to return to modern-day Israel.

The trouble is, Abbas failed to ready his people for this.

The Palestinian leadership should immediately clarify in public to its own people what it has been saying in private to Israeli and American officials, said Beirut-based analyst Rami Khouri, adding that the papers showed the Palestinians lacked the diplomatic clout to wring concessions from the Israelis.

However, Gidi Grinstein, a former head of the Israeli negotiating delegation whose name appears in the documents, said talks had to remain secret and the fact that transcripts had now emerged would wreck trust between the various parties.

It is a devastating blow to negotiators to think that the ideas they explored in private could one day be exposed and taken totally out of context, said Grinstein, who is president of the Reut Institute think tank.

I saw our papers there. It was like someone had punched me in the face.People will be very afraid in future meetings.


UNILATERAL MOVES

The truth is there are no meetings at present. Palestinians have refused to return to talks until Israel ceases settlement building on occupied land. The Americans are also taking time out after their intensive efforts last year came to nothing.

Peace optimists say publication of the documents should spur on the partners and shows the importance of talking. The gaps are small, the Geneva Initiative peace lobby said in adverts that appeared in newspapers this week. Agreement is possible.

But most analysts doubt a return to old-style direction negotiations any time soon.

Instead, they expect the Palestinians will seek to build international support for their drive to statehood, possibly using the United Nations as a springboard, while continuing to ready their own institutions for eventual independence.

Israeli officials, increasingly concerned by perceptions abroad that they are largely to blame for the breakdown in peace talks, say they must prepare for unilateral Palestinian moves.

Israel must in such a situation set itself a border, border crossings, and a borders regime. Even if it would not be recognised, the main thing is to have a border, said Yuval Diskin, head of the internal intelligence service Shin Bet.

(Editing by Noah Barkin)