A senior Palestinian official told Haaretz on Tuesday that "as of now there is no Israeli partner for talks on a final status agreements in light of the continuing investigation against [Prime Minister Ehud] Olmert."

The official said the Palestinian Authority understands that the most recent allegations against Olmert are more serious than those in years past, raising the likelihood that the negotiations would be frozen until the end of the judicial process.

"Our problem is that we also have no partner in Washington," the official said in reference to the American stance on the negotiations between the two sides.

As such, the spokesman for Palestinian President Mahmoud Abbas, Nabil Abu Rudeina, released a statement Tuesday which, while acknowledging the progress made during Olmert and Abbas' meeting on Monday over the issue of borders, cautioned that the gaps remain considerable.

Abu Rudeina said that Abbas made clear to Olmert that the issue of Jerusalem is a "red line" from the Palestinian viewpoint, and that the PA is demanding that any final status agreement stipulate Israel relinquish all of the West Bank.

The Palestinian statement came in response to Israeli media reports of significant progress made over the issue of borders. Abu Rudeina warned that if both sides fail to reach a final agreement, Abbas will be forced to "make dramatic decisions."

Erekat: Difference remain despite reports of progress Palestinian negotiator Saeb Erekat has said that marked differences still remain over key issues in peace talks between Israel and the Palestinians, despite reports of progress at a high-level meeting Monday.

"I cannot say that there was significant progress during the meeting. The issues are still contested," Erekat said, speaking after after Monday's peace talks between Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas.

A government source said following Monday's meeting that "there has been great progress on the issue of the borders of the Palestinian state."

Meanwhile, other Palestinian sources have held that a compromise will not be possible on the divisions between the two sides' positions, even in the face of mounting pressure applied by the United States ahead of President George W. Bush's visit to Israel next week.

Abu Rudeina said a division remains between the two sides on the issue of final-status borders, despite an in-depth debate over it.

Abu Rudeina's related to a request by U.S. Secretary of State Condoleezza Rice that Israel and the Palestinian Authority publish a memorandum of understanding on the progress of their final-status negotiations to date before Bush arrives next week, over which request both sides are unhappy.

According to a government source, Rice wants such a document to make it clear to the international community that the negotiations are indeed progressing. He also said there had also been considerable progress on the issue of security arrangements in talks between Israel and the Palestinians.

But Rice told Israeli officials during her recent visit to the region that even though both sides had reported progress, "the world doesn't believe it." The fact that no concrete document has yet emerged from the negotiations, combined with the lack of dramatic progress in improving the daily lives of Palestinian residents of the West Bank, encourages disbelief, she argued, and this is liable to undermine the process.

She therefore suggested formulating a memorandum of understanding that would outline the general principles to which the parties have agreed - mainly on the issue of borders, but also on the other core issues.

Both sides express reservations However, both the Israeli and Palestinian officials with whom she met expressed reservations about the idea. "The work of drafting such a document will merely halt the progress and the momentum," argued one Israeli official.

"Instead of negotiating, we will start dealing with commas and periods in the draft and try to steal corners from each other," added another.

Both Israel and the PA say the talks have made significant progress, but both would prefer to keep this progress under the media's radar for now. The main progress has been on the issue of borders - the fate of the settlement blocs, territorial exchanges and the "safe passage" between the West Bank and Gaza Strip. Jerusalem has not yet been seriously discussed, and on the refugees, both sides have merely presented their initial - and highly divergent - stances.

Palestinian sources said that during her recent visit, Rice pressed both parties to finalize an agreement on borders quickly, as that is the issue which all sides view as easiest to resolve.

According to these sources, Israel initially expressed a willingness to cede 90 percent of the West Bank to the Palestinians, while the PA demanded at least 98 percent. In particular, Israel wants to retain the major settlement blocs and the Jordan Valley, but the PA rejects these demands. Though some progress has been made, the Palestinian sources said they saw no chance of resolving these disputes in the 10 days remaining before Bush's visit.

Israeli officials who met with Rice said their impression is that she is determined to produce an achievement at almost any price, given the political capital that both she and Bush have invested in the Palestinian issue over the last year.

During her visit, Rice also expressed grave concern over the latest police investigation against Olmert, fearing that it would negatively affect the negotiations. Even if the case is ultimately closed, Israeli officials said, Rice fears that it could hinder Olmert's ability to more forward with the talks.

At Monday's meeting with Abbas, Olmert also promised to keep him informed of the progress of Israel's indirect negotiations with Hamas over a cease-fire in Gaza. The Egyptian intelligence chief, Omar Suleiman, is due to come here next week to present the agreement Egypt has reached with the Palestinian factions and seek Israel's approval. Afterward, the cabinet will apparently hold a special meeting on the subject.

Yuval Azoulay adds: Israel transferred 200 liters of diesel fuel and 30,000 liters of gasoline to the UN Relief and Works Agency yesterday for its work in the Gaza Strip. According to Israeli officials, this is enough for about a month.

UNRWA has been complaining for days that it lacks fuel for its operations, but Israel said it could not transfer more fuel until Hamas emptied the depot to which the fuel is delivered and thereby created space for new deliveries - which it finally did yesterday. Hamas had refused to empty the depot for days, Israeli officials charged, thereby creating an artificial shortage.

However, the fuel transfer was interrupted after a few hours by Palestinian mortar fire on the depot.

Also Monday, Israel imposed a complete closure on the territories, which will remain in force through Memorial and Independence Days (Wednesday and Thursday).