Prime Minister Ehud Olmert is planning to tell United States President George Bush at their meeting at the White House next Tuesday that there is an urgent need to view the West Bank and the Gaza Strip as separate entities and prevent contact between them, political sources in Jerusalem said Thursday.

According to the sources, the defense establishment is recommending a "separation policy" for the two territories, and is emphasizing the importance of "ensuring that what is happening this week in Gaza will not happen in the West Bank."

Bush and Olmert's meeting will center on Hamas' takeover of the Gaza Strip in recent days, and they will discuss whether it is possible to move the peace process forward, and in what ways.

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A political source noted: "As we predicted, the Palestinian unity government has failed."

"We need to utilize all the available force in the handling of Hamas," he added.

Olmert will also raise the topic of deploying a multi-national force along the Gaza-Egypt border in his meetings with Bush and later with United Nations Secretary General Ban Ki-Moon. An international force would be deployed in order to curb the smuggling of arms from Egypt into the Gaza Strip, and strengthening Hamas.

Israel, however, has not yet formulated a unified stance regarding the deployment of the force, which would be commanded by the Arab League, and the security cabinet will meet on the topic when Olmert returns from the U.S.

The second issue for the meeting between the two leaders will be the question of curbing Iran's nuclear ambitions.

The U.S. and Israel agreed last week to reevaluate the use of sanctions on Iran at the end of the year. "At that point we will prepare for strengthening the sanctions, or for something else entirely," a political source said.

According to reports in Jerusalem, the economic sanctions are causing concern for Iran's middle class and business community.

Olmert will suggest Bush broaden "external sanctions" which go beyond the UN Security Council approved sanctions currently in force, such as targeting the Iranian banking system and economy, and the prevention of American pension fund investment in companies trading with Iran.

The prime minister also supports the measure of denying Iranian passport-holders entry to western countries.

Also on Thursday, Defense Minister Amir Peretz told a weekly meeting of security officials that Israel would not allow the ongoing violence between rival Palestinian factions Fatah and Hamas in the Gaza Strip to spread into attacks on southern Israel, meeting participants said.

Earlier Peretz had said "we mustn't allow the fighting between the Palestinian factions deter from the preparedness and alertness of the Israel Defense Forces."

The defense establishment is to hold meetings next week in an effort to prepare recommendations for a new policy in the Gaza Strip, in the wake of what seems to a Hamas conquest of the area.

The general assessment in the Israel Defense Forces is that there is a new reality in the Strip and that Hamas has defeated Fatah in the battle for power.

Israel is watching the developments in the area with grave concern.

Most of the dead in internal clashes have so far been affiliated with Fatah, although at least two civilians participating in a peace demonstration and two United Nations aid workers were also killed Wednesday.

Since Hamas is boycotted by Israel, it is still unclear how essential contacts will be handled, particularly in matters of coordination over the control of transit points and the entry into Israel of Palestinians from the Gaza Strip for humanitarian purposes.

At this stage all crossings into the Gaza Strip are closed to traffic because of the fighting. IDF forces along the border fence have been instructed to show restraint and avoid being dragged into the Palestinian infighting.

Israeli political sources said Wednesday that the Hamas takeover requires that Israel reexamine its ties with the Gaza Strip, and whether it will continue its economic ties, the infrastructure links - providing of fuel and electricity from Israel.

The situation emerging in the Gaza Strip is also lending greater urgency to the Olmert's decision to promote an initiative for the deployment of a multi-national force along the Philadelphi Route and for the construction of a barrier to combat smuggling of arms and weapons into the Gaza Strip.