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Palestinian Authority Chairman Mahmoud Abbas has rejected an Israeli plan for a Palestinian state with provisional borders, the PLO's chief negotiator Saeb Erekat told the Palestinian daily Al-Ayam on Wednesday.

The new Israeli plan was first revealed by Haaretz on Wednesday.

According to Erekat, the only viable option for peace is Israel's withdrawal to pre-1967 borders and the establishment of a Palestinian state with Jerusalem as its capital and a just solution to the Palestinian refugee problem.

In light of the international opposition to further unilateral steps by Israel, the government had begun to draft an alternative plan that would essentially convert Prime Minister Ehud Olmert's unilateral convergence plan to withdraw from parts of the West Bank into a bilateral move carried out in conjunction with Abbas.

According to the plan being drafted by the Prime Minister's Office and the Foreign Ministry, Israel would propose to Abbas that they reach an agreement to establish a Palestinian state with provisional borders in Gaza plus about 90 percent of the West Bank. The provisional border in the West Bank would match the route of the separation fence, with one exception: Israel would retain security control over the Jordan Valley.

Olmert referred to the plan to withdraw to the route of the separation fence on Tuesday in a meeting with British parliamentarians in London. He rebuffed those whom he said term his convergence plan a 'Zionist plot' because Israel is not promising to withdraw from the entire West Bank. Even under the preferred option of negotiations and an agreement with the Palestinians, he said, Israel would not agree to withdraw from the entire West Bank, because the pre-1967 borders are not defensible.

Asked why the separation fence around Jerusalem includes some 200,000 Palestinians on the Israeli side, Olmert responded that not all of the city's Arab neighborhoods would be part of it in the future. The Jewish people, he said, have prayed toward Jerusalem three times a day for generations, but they "didn't pray toward Bir Naballah and Issawiya;" they prayed toward the Temple Mount and the Old City.

Foreign Minister Tzipi Livni confirmed to Haaretz that she told senior ministry officials last week that "currently, Abu Mazen is not a partner for a final-status agreement, but he could be a partner for other arrangements, on the basis of the road map's phased process." One participant in this meeting said that Livni spoke explicitly about an agreement to establish a Palestinian state with provisional borders. Phase II of the road map presents the "option" of an independent Palestinian state with provisional borders, "as a way station to a permanent status settlement."

Prior to Hamas's rise to power in the PA, Abbas rejected the idea of a state with provisional borders, demanding immediate talks on a final-status agreement instead. However, Washington backed Israel's stance in favor of a provisional state, and Jerusalem expects that the U.S. will pressure Abbas to change his position.

Meanwhile, Defense Minister Amir Peretz has decided to reexamine the route of the fence, especially around Jerusalem, in order to reduce both damage to Palestinian property and the project's costs.

European Union envoy Mark Otte has also proposed evacuating isolated settlements in coordination with the PA, while giving the PA international guarantees that the border set by Israel will not be the final border. In an interview with Haaretz, he suggested putting the Jordan-West Bank border under European supervision, as was done with the Gaza-Egypt border, opening the Gaza port, and instituting a "safe passage" between Gaza and the West Bank. Otte said that Israel could bypass Hamas and implement this program in conjunction with Abbas, thereby bolstering his status.