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Israel has proposed that safe passage for the Palestinians from the West Bank to the Gaza Strip be included in an exchange of territory with the Palestinians in the framework of the agreement of principles now being formulated ahead of the upcoming regional summit.

The Palestinians will receive control of the route, but Israel will maintain sovereignty and it will only begin to operate after the Palestinian Authority, under its present leadership, reasserts control over the Gaza Strip.

Jerusalem believes that the move will help PA Chairman Mahmoud Abbas and Prime Minister Salam Fayad garner public support in Gaza, which will see the Hamas government as an obstacle in renewing communication with the West Bank.

A senior official involved in talks with the Palestinians said that the agreement of principles will not set out the details of the land to be transfered to the Palestinians in exchange for Israel's settlement blocs, but will reflect as wide as possible a consensus on the core issues with some ambiguity. The details will be hammered out in negotiations after the summit.

It is believed that for the Palestinians, safe passage is worth more than its nominal territory, and therefore this will be a central component in a territorial package.

Sources close to Abbas say the PA chairman has removed his objection to the establishment of a state with temporary borders following the signing of the agreement of principles, but has conditioned his agreement on international assurances of a timetable for the end of negotiations on permanent borders.

Internal discussions in Israel along with talks with the Palestinians are formulating the following positions:

Borders -- The starting point is the separation fence, without additional areas slated for the expansion of settlements. This leaves 92 percent of the area of the West Bank in Palestinian hands. The final area of the new state will be larger than the area east of the fence, but smaller than the area proposed in the Geneva Accord.

Among themselves, Israeli officials talk about the need to begin applying the principles of the Evacuation-Compensation Law on West Bank settlers. Two bills have recently been proposed on this issue, one by Colette Avital (Labor) and Avshalom Vilan (Meretz), and the other by Amir Peretz and Yuli Tamir (Labor).

Jerusalem -- According to a government official, Israel would be willing to transfer to the Palestinians at an early stage a number of neighborhoods and refugee camps outside the fence and in the area of the Seam Line. At a later stage, it would transfer more or most of the Arab neighborhoods.

The guiding principle is similar to that of the Clinton Plan: Jewish areas for Jews and Arab areas for Arabs. The "basin" of sacred sites in the Old City would be administered jointly by representatives of the three religions, each responsible for its own sites.

Refugees -- Israel would recognize Palestinian refugee suffering and accept indirectly some responsibility for the refugees from the 1948 war. Israel would also take part in an international project to rehabilitate refugees in Palestine, in areas Israel would transfer to the Palestinians and in the countries where they are now living.

Israel is basing itself on the clause in the Arab peace plan noting that a solution to the refugee problem is predicated on Israel's consent.

While the U.S. did not plan the agenda of the summit ahead of time, it sees the agreement of principles as key to the summit's success and is encouraging the parties to move ahead on it before the summit. The Americans believe the agreement greatly improves the chances that Saudi Arabia will take part in the summit, and will back Abbas and Fayad politically and economically. To connect the regional summit to the Saudi and Arab initiatives, the Saudis and the Palestinians want the summit to relate to the Israel-Syrian issue as well.