A Saudi threat to cut off Blackberry Messenger services did not take immediate hold on Friday as users in Saudi Arabia were still able to access the service.

Talks between maker Research In Motion (RIM) and the Saudi telecom regulator have made progress, a source with direct knowledge of the negotiations told Reuters on Thursday night.

RIM showed on Thursday a degree of flexibility that has not been there over the past three months. Progress is being made. We started debating the technicalities of new setups, the source said.

Still, the source expected the ban on BlackBerry Messenger to take hold on Friday as decreed earlier this week by the Communications and Information Technology Commission (CITC).

Officials at CITC did not respond to requests for comment.

Saudi Arabia is RIM's biggest Middle East market with about 700,000 users. The Saudi government says the ban is for reasons of national security.

What is unclear is how long a ban would last if the two sides are able to reach a compromise over the company's encrypted network and the government's concerns.

They should have done their research before allowing BlackBerry in the market, said BlackBerry user Rayan, a Saudi in his 30s.

RIM is facing pressure to open its encypted network to scrutiny by governments in circumstances affecting national security.

India, Saudi Arabia, the UAE, Lebanon and Algeria have all voiced similar concerns which center on access to communications sent through the device.

The U.S. and Canadian governments have expressed concern about implications from banning such services.

RIM might resolve the Saudi situation by locating a server in the kingdom to handle some of the BlackBerry network's encrypted communications, Al-Hayat newspaper's online edition said on Friday in an unsourced report.

Neighbouring UAE has 500,000 and plans a more sweeping ban from October 11 targeting not only Messenger but also email and web browsing on the device.

Sources have told Reuters that the UAE government has also suggested RIM install a server handling BlackBerry traffic in the country.

The UAE could access the data it requires either through a local server or an encryption master key used in BlackBerry technology, said Shardul Shrimani, Middle East and North Africa analyst at IHS Global Insight.

BlackBerry is not likely to offer a master key and essentially a server installed in the country would be similar to offering them a master key, Shrimani said.

The main concern for the government is not monitoring business communications. What the government is worried about is a very small minority who would be using BlackBerry for any sort of illegal activity, he said.

RIM has stipulated that any Saudi agreement must apply to the kingdom's three mobile phone operators: state-controlled Saudi Telecom, Mobily and Zain Saudi Arabia.

RIM will not engage in one-to-one talks with the operators about any solution it will adopt. They will have to take it, all of them, the source said.

The Canadian company said on Wednesday it has never provided anything unique to the government of one country and cannot accommodate any request for a copy of a customer's encryption key.

(Additional reporting from Asma Alsharif in Jeddah)

(Reporting by Souhail Karam; Editing by Jason Neely and Angus MacSwan)

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