Saudi Arabia has abandoned its pursuit of an ambitious defence treaty with Washington in return for normalising relations with Israel and is now pushing for a more modest military cooperation agreement, two Saudi and four Western officials told Reuters.

In a drive to get a wide-ranging mutual security treaty over the line earlier this year, Riyadh softened its position on Palestinian statehood, telling Washington that a public commitment from Israel to a two-state solution could be enough for the Gulf kingdom to normalise relations.

But with public anger in Saudi Arabia and the wider Middle East at fever pitch over Israel's military actions in Gaza, Crown Prince Mohammed bin Salman has again made recognition of Israel conditional on it taking concrete steps to create a Palestinian state, two Saudi and three Western sources said.

Israeli Prime Minster Benjamin Netanyahu is still eager to secure normalisation with the Saudi powerhouse as a historic milestone and a sign of broader acceptance in the Arab world, Western diplomats said.

But he faces overwhelming opposition at home to any concessions to the Palestinians following the Oct. 7 Hamas attacks and knows any gesture in the direction of statehood would fracture his ruling coalition, they said.

With both leaders shackled for now by their domestic powerbases, Riyadh and Washington hope a more modest defence pact could be sealed before President Joe Biden leaves the White House in January, the sources said.

A full-blown U.S.-Saudi treaty would need to pass the U.S. Senate with a two-thirds majority - and this would be a non-starter unless Riyadh recognises Israel, the six sources said.

The pact now under discussion would involve expanding joint military exercises and drills to address regional threats, mainly from Iran. It would foster partnerships between U.S. and Saudi defence firms, with safeguards to prevent collaboration with China, the sources said.

The agreement would promote Saudi investment in advanced technologies, especially drone defence. The U.S. would increase its presence in Riyadh through training, logistics and cyber security support, and may deploy a Patriot missile battalion to enhance missile defence and integrated deterrence.

But it would not be the kind of binding mutual defence treaty that would oblige U.S. forces to protect the world's biggest oil exporter in the event of foreign attack.

"Saudi Arabia will get a security deal which will allow more military cooperation and sales of U.S. weapons, but not a defence treaty similar to that of Japan or South Korea as initially sought," said Abdelaziz al-Sagher, head of the Gulf Research Institute think-tank in Saudi Arabia.