Israel and Saudi Arabia have reportedly engaged in secret meetings since last December, regarding including Saudi representatives in the Islamic Waqf Council at the Al-Aqsa Compound in Jerusalem.
The Islamic Waqf Council is a Jordanian-appointed body, which oversees Muslim sites in Jerusalem and claims exclusive authority over the Al-Aqsa Compound and says it is not subject to Israeli jurisdiction.
The talks have reportedly taken place within the context of US President Donald Trump's controversial Israel-Palestine plan, known colloquially as the "deal of the century", the diplomats said.
"These are sensitive and secret discussions conducted with ambiguity and low intensity with a small team of diplomats and senior security officials from Israel, the US and Saudi Arabia as part of negotiations to progress the Deal of the Century," said senior Saudi diplomats to Israel Hayom.
The Israeli paper further reports that the Jordanians reached out to Israel and the US and said it had softened their position regarding Saudi representation to counter the increased Turkish influence.
It is however on the conditions that Jordan would retain its exclusive status as the custodian of the holy sites, and that Saudi Arabia fund Islamic organisations in East Jerusalem while expelling those funded by Turkey.
A senior Arab diplomat told Israel Hayom: "If the Jordanians had allowed the Turks to operate without interruption in Al-Aqsa, within a few years they would have remained 'only on paper' as having a special status in managing the holy places of Islam. They need money and influence from Saudi Arabia to curb [Turkish President] Erdogan."
"Israel and the U.S. also have an interest here in their desire to support Saudi Arabia in advancing the deal of the century plan and during the process of annexation. Saudi Arabia also brings with it the support of the UAE and Bahrain," he said.
Saudi Arabia would be given the status of observer so as not to harm the unique status of Jordan as guardian of the holy sites, the report added.
Palestinian-Saudi relations have publicly been on edge for almost two years, mainly over the kingdom's close ties with US President Donald Trump's administration and Riyadh's apparent support for the 'deal of the century' and normalisation of ties with Israel.