Jerusalem sticking point at Middle East talks

By Paul Taylor

WASHINGTON (Reuters): Despite public talk of wide gaps between Israel and the Palestinians on all issues, only the status of Jerusalem looks unbridgeable at the Camp David Middle East peace summit, diplomats and analysts say.

But whether the two sides could agree on an "everything but Jerusalem" deal when U.S. President Bill Clinton returns from Japan early next week remains to be seen.

Shielded by a news blackout, sources close to the talks say substantial progress has been made on the other core issues under negotiation -- the powers and borders of a Palestinian state, the future of Jewish settlers and the fate of Palestinian refugees.

"The Americans are going to concentrate on trying to wrap up those issues that are more or less discussed and agreed, so that when Clinton gets back from Japan, they'll have some final document to present to him," one source said.

Asked which issues it would cover, he said: "All issues except Jerusalem, but without Jerusalem maybe there is no agreement."

Israeli Prime Minister Ehud Barak's spokesman, Gadi Baltiansky, played down the suggestion that the sides were close on any point.

"There are many difficulties and the gaps are very wide. We will need a lot of effort and hard work to bridge those gaps," he said on Thursday.

Details are sketchy, yet accounts from both sides and from neutral diplomats suggest there is provisional agreement on the establishment of a demilitarized Palestinian state on roughly 95 percent of the West Bank and Gaza Strip, although it would not control all that territory immediately.

Israel would lease back some land for security purposes and would annex the main settlement blocs in which some 130,000 Jewish settlers live -- about three-quarters of the total.

On refugees, Israel would express regret without accepting legal responsibility for the Palestinian refugee problem.

The Israelis would agree to admit perhaps 100,000 refugees in a one-time "humanitarian family reunification program", which the Palestinians could choose to call the selective exercise of a "right of return" -- not recognized by Israel.

International bodies would be set up to fund and supervise the absorption of Palestinian refugees in a Palestinian state, in their current countries of residence and in other states that would offer some of them a home.

Israel would contribute to that fund.

Palestinian officials said that under a U.S. compromise proposal, there would be a reference in the agreement to United Nations resolution 194, which set out the right of refugees to return to their original homes and villages, with compensation for those who did not wish to return.

Israel has never accepted the resolution.

"There are still problems on refugees, but the gap is not insurmountable," a diplomat said.

The Jerusalem conundrum seems the most insoluble, given the "red lines" of both Barak and Palestinian President Yasser Arafat and the conflicting political pressures on each man.

Barak insists on undivided Israeli sovereignty over the whole city and is prepared to concede only "municipal autonomy" to the Palestinians.

Arafat says Arab East Jerusalem, captured and annexed by Israel in 1967, is occupied land just like the rest and must be returned to full Palestinian sovereignty to be the capital of the Palestinian state.

He is willing to make an exception for the Jewish Quarter of the Old City and the Wailing Wall, Judaism's holiest site.

On Wednesday, the ninth day of the negotiating marathon, the United States offered a proposal under which Israel and the Palestinians would have "shared sovereignty" over parts of the walled Old City, sources close to the talks said.

Israel would annex to Jerusalem nearby Jewish settlements, including the sizable dormitory suburb of Ma'aleh Adumim, Givat Ze'ev and the Gush Etzion bloc south of Bethlehem.

The Palestinians would have "authority" or "control" but apparently not "sovereignty" in Arab districts of East Jerusalem. Some sources suggested they might gain "sovereignty" in some more outlying Arab suburbs.

Details remain vague and in some cases contradictory, with officials on each side putting a different spin on the U.S. proposal, without rejecting it outright.

After looking closely at the American idea, Palestinian advisers to Arafat said it would make things worse than they are now under occupation.

One said it would mean an Israeli checkpoint on every street in the city. It would give Palestinians only "municipal" powers, such as a municipal security apparatus but not police.

"It is worse than the Israeli proposal, which gives Palestinians self-rule in Jerusalem," another official said.

They said Americans and Israelis were trying to redefine the word sovereignty so that Israel would maintain real control over Jerusalem, while Palestinians could tell the world they were in charge.

Arafat has rejected anything short of full sovereignty in Jerusalem but his delegation is still discussing the proposal.

An Israeli source in touch with Barak said the U.S. proposal still on the table provided for shared sovereignty in some Arab neighborhoods without armed Palestinian police.

The source suggested the proposal was acceptable to Israel and it was up to Arafat to say yes or no when Clinton returns.

Israeli sources said the door remained open for an agreement that left the status of some Arab neighborhoods in Jerusalem unresolved, but Israel was insisting that the annexation of the surrounding settlements be part of any deal.

But the Palestinians said without Jerusalem, there would be no agreement.