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Nabil Abu Rudeina, spokesman for Palestinian President Mahmoud Abbas, said that if Israel opts for peace and has a leader who is willing to make genuine compromises, a peace agreement could be reached within three to six months.

Palestinian sources said the PA would only be willing to relinquish Palestinian sovereignty over the Temple Mount as part of a final-status agreement in exchange for Islamic sovereignty over the site.

Meanwhile, Egyptian President Hosni Mubarak announced yesterday that he was canceling his planned visit to Washington next week due to the death of his grandson.

Abbas is expected to meet U.S. President Barack Obama next week. Abu Rudeina said Abbas will ask for clarifications on the U.S. stance on negotiations with Israel.

"During the meetings with U.S. special envoy George Mitchell, we made it clear that there must be an Israeli recognition of the principle of two states for two peoples and a freezing of construction in the settlements," Abu Rudeina said.

"We will hear what happened during the meeting between [Prime Minister Benjamin] Netanyahu and Obama on the Palestinian question and what the American plans are for the coming months. Abu Mazen [Abbas] will consult with Saudi Arabia, Egypt and Jordan to formulate a position ahead of the meeting. In any case, the result of the negotiations between Israel and the PA must be clear: the establishment of a Palestinian state within the 1967 borders, whose capital is East Jerusalem," the senior PA official said.

Palestinian sources said the PA would give up Palestinian sovereignty on the Temple Mount in exchange for Muslim sovereignty, management of the site by the Saudi-based Islamic Conference Organization, whose 57 member states include Iran.

The ICO is signatory to the Arab Peace Initiative. The envisioned agreement would provide the Palestinians with backing from all Muslim states toward a historic compromise with Israel in a peace agreement.

According to the proposal, the Western Wall and the Jewish Quarter of Jerusalem's Old City will be under Israeli sovereignty, while the Muslim, Christian and Armenian quarters would be transfered to Palestinian sovereignty. Israel objects to Palestinian sovereignty over the Armenian Quarter.

There is also a dispute building over the Western Wall; the PA plans to demand that Israeli sovereignty applies only to part of the wall.

With regards to the right of return, the Palestinians reiterated their traditional position: Israel must acknowledge responsibility for the creation of the refugee problem.

Abu Rudeina says the Palestinian position on the issue is identical to that of the Arab Peace Initiative: a just and agreed solution to the refugee question, on the basis of UN Resolution 194.

But other Palestinian sources say the PA will probably agree to an arrangement under which refugees will have the right of return to the Palestinian state, with Israel agreeing to absorb up to 100,000 Palestinians within its borders under family reunification.

Regarding borders, Abu Rudeina said that the principle of territorial exchange was agreed, although there are disagreements over the exact areas. He said that in the most recent talks the Palestinians agreed to an exchange involving 1.2 percent of West Bank land, while then prime minister Ehud Olmert demanded 6.5 percent.

"But the issue also depends on quality. If [Israel] receives land in the Jerusalem area or Bethlehem we will not agree to receive desert land in exchange," Abu Rudeina said.

He told Haaretz that the Arab states are willing to agree to peace. "The problem is that now Israel is unwilling. They used to tell us that with Olmert involved in corruption the negotiations can't be completed with him. Now they say Netanyahu will be restricted because of his coalition problems. Every time it's a different story. Perhaps that's why 15 years have passed and we haven't seen peace."