"Israel, Iran, Turkey and Arab states should sit together in one organization," Sheikh Khaled bin Ahmad al-Khalifa was quoted in the pan-Arab daily Al-Hayat as saying.
"Arent we all members of a global organization called the United Nations? Why not (come together) on a regional basis? This is the only way to solve our problems. There’s no other way to solve them, now or in 200 years."
Al-Hayat, which interviewed the Bahraini chief diplomat in New York, said he had proposed the establishment of a regional bloc in a speech to the UN General Assembly.
The tiny Gulf kingdom is a major ally of the United States and has a free trade agreement with Washington. It also hosts the U.S. Navy’s Fifth Fleet.
Bahrain’s crown prince, Sheikh Salman bin Hamad al-Khalifa, met Israeli officials during World Economic Forum summits in 2000 and 2003, while Sheikh Khaled met Israeli counterpart Tzipi Livni at the U.N. last year.
But political groupings in Bahrain, which is ruled by a Sunni dynasty and has a Shiite majority, resist any attempt at normalization of ties with Israel.
Only two Arab countries -- Egypt and Jordan -- have full fledged peace treaties with Israel. Bahrain’s Gulf neighbor Qatar, another close U.S. ally, is one of a handful of Arab countries to maintain political contacts with the Jewish state.
Forging ties with Israel without a solution to the Palestinian-Israeli conflict is generally unpopular among ordinary Arabs.
"Why don’t we sit together even if we disagree, even if we don’t recognize each other? Lets be in a single organization in order to overcome the difficult stage through which the Middle East is passing -- a stage that remains hostage to the past," Sheikh Khaled told Al-Hayat, referring to the decades-old Arab-Israeli conflict.
Told that his proposal might be perceived by some as a "dream" since it was hard to see hardline Iranian President Mahmoud Ahmadinejad sitting alongside Israel, Sheikh Khaled, whose country occasionally has problems with Iran, said: "If this is perceived as a dream, well, many dreams have become reality."