RIYADH, 11 January — The foreign ministers of Saudi Arabia and Egypt have formed a committee of experts to study their plan for the setting up of a free trade zone, it was announced here after a joint commission meeting late Tuesday.

"An ad hoc committee will study the project in an attempt to reach an agreement," Foreign Minister Prince Saud Al-Faisal told reporters late Tuesday at the end of a joint commission meeting.

The project is part of a wider plan launched by the Arab League's 22 members in 1998 to set up a free zone and phase out customs barriers by 2007. Fourteen states, including Egypt and Saudi Arabia, have already slashed customs fees on their trade by 30 percent.

Prince Saud, who co-chaired the meeting with his Egyptian counterpart Amr Mousa, called for the private sector to play a larger role in increasing bilateral trade between the two countries, which he said fell in 1999 to $584 million, down by $133 million compared to 1998.

In contrast, Saudi investments in Egypt amount to $1.15 billion, according to Egypt's ambassador to Riyadh, Hilmi Budeir.

On the political front, the two countries have thrown their support behind the Palestinians saying there could be no peace in the Middle East without Palestinian sovereignty over Al-Quds (Jerusalem) and the refugees' right to return.

"Any solution or settlement to the Palestinian cause that does not include the legitimate Palestinian demands and rights, including the right of return for Palestinians and sovereignty over Arab East Jerusalem...is a solution that does not guarantee stability in the Middle East," Prince Saud said.

Amr Mousa said: "The right of return for Palestinian refugees is the core of the Palestinian cause...We are all working to protect these rights and reach a just settlement despite the many complications".

"We reiterate our firm position that Jerusalem is an Arab, Islamic issue, and is not negotiable or is not a subject to compromise... The success of any (peace) efforts will continue to be linked to how much these efforts abide by...the principle of land for peace," Prince Saud said.

The peace proposals made by US President Bill Clinton recently would give the Palestinians sovereignty over Gaza and the "vast majority" of the West Bank but deny refugees and millions of their descendants the right to return home. The plan would also give Palestinians control of Arab areas in Jerusalem and offer a compromise on the city's holy sites.

A joint communiqué issued after the commission meeting, however, said the two countries hoped that the ongoing peace initiatives would reach a settlement that would return the legitimate rights of the Palestinians. They urged the international community to pressure Israel to implement the principles agreed upon at Madrid peace conference.

At the commission meeting, which was dominated by economic issues, the two countries expressed their desire to expand cooperation in all areas and increase trade exchange. "The two sides agreed to set up a technical committee of experts to discuss all obstacles that hamper trade relations," the joint communiqué said. The committee will meet in Cairo on Feb. 17-18.

Osama Kurdi, secretary-general of the Council of Saudi Chambers, commended the outcome of the meeting and said it would boost economic relations between the two countries. "The two sides should work seriously with a spirit of understanding to achieve their set goals," he added.

Kurdi said the meeting had also tackled many problems that stood in the way of strengthening of bilateral relations.