'Leaseback plan' for settlements

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The biggest Jewish settlement blocks in the West Bank could be "leased" from the Palestinians under a new formula being discussed within the Israeli Labour Party to overcome one of the most difficult obstacles to a lasting peace.

A group advising Amir Peretz, the Labour Party leader, has been considering a proposal for a long-term leaseback of the main settlement blocks on the model of the 99-year agreement that provided for Hong Kong to remain under British control until 1997.

Such a proposal is an apparent attempt to square the circle between Palestinian insistence that any two-state solution should broadly conform with Israel's pre-1967 borders and the view of a wide segment of Israeli opinion that the major settlement blocks should remain in Israeli hands.

That view was given explicit encouragement last year by the US President, George Bush, in his declaration to Ariel Sharon, the Israeli Prime Minister, that major Jewish "population centres" in the West Bank could remain in Israeli control under any final status settlement. It was not immediately clear what would be the fate of such territory at the end of the long lease period.

The proposal was reported yesterday in the daily newspaper Haaretz, the day after a visit to its offices by Mr Peretz. But a spokeswoman for Mr Peretz said the Labour leader had not been the source for the report and that there was no "official paper" making such a recommendation.

The paper suggested Mr Peretz was not contemplating an "interim settlement" with provisional borders but would instead seek to set a date for final status negotiations. Only if these failed would a Labour government consider unilateral withdrawals from the West Bank, it said.

The leasing would involve monetary or territorial compensation to the Palestinians for maintaining control over the settlements.