Sharon proposal for solving the Gaza refugee problem did not favour with the Labour dominated government because they believed it would undermine Israel's negotiating position. They were against "unilateral concessions". As Sharon wrote many years later: "It was true that the established Israeli position was based on fact and sense, while what I was proposing would indeed be a complicated process that would generate very real problems. Yet these were objectives I was convinced were well worth pursuing, even if the government did not".
Israeli PM to Palestinian President Abbas: We must fight terror together (Haaretz)
from the article: Separation at the Erez crossing