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Israel will allow Palestinians living in East Jerusalem to vote in the January 25 Palestinian Legislative Council elections, but will restrict the participation of terror groups, Acting Prime Minister Ehud Olmert told U.S. Secretary of State Condoleezza Rice yesterday.

Olmert will bring his decision before the government for approval Sunday.

Olmert told Rice by telephone that "it will be clear that terror organizations and their representatives will not be able to participate in the vote in Jerusalem," officials said. "In light of the Palestinian Authority's explicit commitment to dismantle Hamas and its infrastructures after the elections, and as a result of the elections, Israel will not give the Palestinians any excuse to postpone the elections and shirk their responsibility."

Government sources in Jerusalem said any wanted Hamas members who show up at the polls or run a campaign in East Jerusalem would be arrested. Nonetheless, Israel will not ban ballot slips for parties or candidates identified with Hamas, Defense Ministry and Prime Minister's Office officials said yesterday.

However, Palestinians were confused about the Israeli decision and under the impression there would be no ballot slips for Hamas at post offices in East Jerusalem, where the voting is to take place. Of the 40 candidates in East Jerusalem running for six seats, four are Hamas running on the local list. Another candidate is No. 2 on Hamas' national list. Voters will place two ballot slips in the box on voting day: one to elect a party on the national ticket (where Hamas is identified as "the ticket for change and reform"), and one to choose candidates for local elections.

Meanwhile, Rice told Olmert that the United States stands behind all agreements with Prime Minister Ariel Sharon regarding the road map and U.S. President George W. Bush's two-state vision.

Olmert decided to allow voting in East Jerusalem following a request by the American administration Monday. Prior to that, Israel's position was that East Jerusalem Palestinians would be able to vote outside Jerusalem's municipal boundaries, but not in the capital itself. This position was a way to protest Hamas' participation in the elections.

The Palestinians responded by threatening to postpone the elections due to the symbolic importance of elections in Jerusalem. Israel expected the PA to postpone the elections, but the United States pressured PA Chairman Mahmoud Abbas to announce this week that they would take place as scheduled.

The Americans then told Israel that the only excuse Abbas had for postponing the elections was Israel's opposition to elections in Jerusalem - and Olmert decided that the damage Israel would sustain if it banned the voting would not be worth it.

Defense Minister Shaul Mofaz said yesterday morning that Israel would allow voting in East Jerusalem, although Foreign Minister Silvan Shalom added to the confusion when he said a short time later that Israel would not allow voting there.

Top security officials decided yesterday that a delay of the elections would free Abbas from his commitment to act against Hamas, which could lead to an outbreak of terror. Mofaz said at the meeting that Israel must "not allow a situation in which it will be blamed for the failure" of the elections.