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Prime Minister Ehud Olmert is examining a new framework for peace in which Israel will propose transferring to the Palestinian state areas equivalent to 100 percent of the territories conquered in 1967.

Israel will suggest to the Palestinians to conduct negotiations for adequate territorial compensation from Israel's sovereign territory, in exchange for settlement blocs amounting to about 5 percent of the West Bank's area.

Israel is also examining various options of exchanging settlement blocs with Arab community blocs within Israel, in agreement with the residents. An agreement on this issue would enable Yisrael Beiteinu, headed by Avigdor Lieberman, to remain in the coalition.

The new framework was presented to Olmert by President Shimon Peres, a few days after he entered the President's Residence. It includes a timetable for negotiations for the final status agreement and implementing it, similar to the framework of the Peres-Abu Ala agreement reached at the end of 2001.

Olmert has not yet decided on his position regarding all the plan's clauses, but apparently has not dismissed its main ideas.

Olmert and Mahmoud Abbas agreed yesterday that cooperation between Israel and the Palestinian Authority would be expanded, in an effort to expedite progress in their talks for the establishment of the Palestinian state.

"Exchanges between the two sides will become increasingly more substantive, and will deal less with routine matters," a senior political source in Jerusalem said yesterday.

The three-hour meeting between Olmert and Abbas took place in two parts: a private meeting just between the leaders, and a lunch with their teams of advisers.

Sources in the Prime Minister's Bureau said that the atmosphere at the meeting was constructive.

Saeb Erekat, head of the PLO negotiating team, described yesterday's meeting between Olmert and Abbas as serious and detailed.

"Abbas did not come to the meeting with a magic wand, and neither did Mr. Olmert," Erekat said at a news conference. "There is an agreement on a series of meetings to discuss the issues, including the establishment of a Palestinian state."

Abbas thanked Olmert for the release of 255 Palestinians held in Israeli prisons, and expressed hope that the next step would result in the freeing of more prisoners. The two decided to institute a special ministerial committee, and that the Palestinian Authority will be represented by Interior Minister Abd al-Razek al-Yihiye.

Israel also promised the Palestinians to reconsider the request of the militants who were expelled after the siege on the Church of the Nativity in 2002.

"The negotiations on renewing the diplomatic talks between the two sides have reached fruition," Erekat said yesterday. "What we now need is decisions by the two leaders. We do not need to do anything new for a regional summit, but to clarify the existing initiatives and the signed agreements. We support the Arab [League] initiative and the road map as the basis for this summit."

Erekat also said that the two leaders would hold at least three more meetings before the November summit in Washington.

Commenting on the Abbas-Olmert meeting, Hamas leader Ismail Haniyeh said that he did not expect it to produce any results.

After the tete-a-tete, Olmert said he and Abbas discussed issues fundamental to the establishment of a Palestinian state.

"We have decided to expand the negotiations between us in order to advance mutual understanding, and formulate the framework that will allow us to move forward toward establishing a Palestinian state," Olmert said. "Our mutual goal is to realize the shared vision between us and [U.S. President George] Bush regarding the establishment of two states for two peoples, who live side by side in security and peace. We want to achieve this as soon as possible."

He said he had no intention of stalling.

During the expanded meeting, the Palestinians spoke of the resumed security cooperation between the Palestinian Authority and Israel. They handed a document to Olmert and his aides detailing the PA's steps to enhance security in recent weeks, including the arrest of several members of terror organizations, and captured munitions and explosives that was handed over to Israel.