Dubai's index rallied the most in two weeks as Israel postponed a decision to launch a ground assault on Gaza and leading diplomats headed to the region.
Talks led by Egypt were joined yesterday by the United Nations secretary-general Ban Ki-moon, while the United States secretary of state Hillary Clinton headed towards the region.
The Dubai Financial Market General Index rose 0.7 per cent to 1,591.40 points, while the Abu Dhabi Securities Exchange General Index was flat at 2,660.80.
As investors feared the effects of a spillover of the conflict on regional oil markets, Brent crude futures rose for a third consecutive trading session, gaining 7 cents to US$113.15.
Both the European benchmark and West Texas Intermediate, its US equivalent, have risen by about $3 per barrel since the conflict began. Emaar Properties, Drake & Scull International and Ajman Bank led gains on Dubai's bourse, while National Bank of Abu Dhabi rose most in the capital, balanced by declines at the telecoms giant Etisalat.
Markets had been buoyed after a string of poor trading sessions by better-than-expected home sales in the US last month, pointing to a strengthening of the world's largest economy, said Tariq Qaqish, the deputy head of asset management at Al Mal Capital.
It was a mixed picture elsewhere in the Arabian Gulf. Kuwait and Qatar also rallied, while Oman and Bahrain fell. The Saudi Tadawul All-Share Index was flat at 6,662.04.
However, Egyptian equities narrowly avoided the fourth straight day of sharp declines.
The EGX 30 Index fell as much as 2.1 per cent, before paring gains to close flat at 5,409.89 after the announcement that a deal had been struck with the IMF for a $4.8bn rescue package.