Olmert deputy urges talks on future of Jerusalem

JERUSALEM, Oct 8 (Reuters) Prime Minister Ehud Olmert's deputy said today that Israel should be prepared for future negotiations with the Palestinians over dividing Jerusalem and ceding authority over some of its holiest sites.

Vice Premier Haim Ramon made the comments as Israeli and Palestinian negotiators opened talks at a secret location in Israel over a joint document they hoped to present at a US-sponsored conference on Palestinian statehood.

Nabil Abu Rdainah, an aide to Palestinian President Mahmoud Abbas, told the official WAFA news agency that the talks are meant to chart a course toward comprehensive peace. Diplomatic failure, he said, could ''drown the region in violence''.

Ramon's public comments on the most sensitive issues in the conflict have stoked speculation he is floating trial balloons on behalf of Olmert ahead of the international gathering expected to take place in Annapolis, Maryland.

''Wouldn't it be the right deal today for the Palestinians, the Western world and the international community to recognise (Israel's) annexation of ... (Jewish) neighbourhoods as part of Jerusalem, and for us to quit the Arab neighbourhoods,'' Ramon told Israel Radio.

He said talk of ceding control over holy sites in Jerusalem's Old City, which he referred to as the ''holy basin'', was premature for now. But Ramon added: ''We need to say there will be a special regime in the 'holy basin', which we will talk about in the future.'' Olmert and Abbas agreed last week the joint document would be the basis for final-status negotiations that would begin after the conference in mid-to-late November.

Final-status talks -- over the borders of a future Palestinian state and the fate of Jerusalem and millions of Palestinian refugees -- broke down in early 2001 amid violence.

Abbas wants to bring any deal before the Palestinian people for a referendum, but it is unclear how that would be done with his secular Fatah faction in control only in the occupied West Bank after Hamas Islamists seized the Gaza Strip in June.

Ramon is one of Olmert's closest confidants, but the prime minister, weakened by corruption scandals and last year's Lebanon war, has not committed publicly to his deputy's ideas.

PRESSURE Olmert has sought to lower expectations for the conference, seeking a broadbrush joint statement to deflect pressure from coalition partners who oppose dividing Jerusalem and making moves to bolster Abbas, who wants a more detailed document.

Strategic Affairs Minister Avigdor Lieberman, the leading far-right member of Olmert's centrist coalition government, said he was prepared to trade some Palestinian areas within Jerusalem for Jewish settlement blocs in the occupied West Bank.

But Lieberman ruled out dividing or ceding authority over the Old City, site of Judaism's Western Wall and Islam's al-Aqsa mosque and Dome of the Rock.

Ramon said Olmert's government would not accept a formal ''right to return'' for Palestinian refugees to what is now Israel. But he said some Palestinians could request permission to return to Israel ''on the basis of charity and mercy''.

Ramon expressed hope that his proposals would win support within Olmert's cabinet, both from leading left-leaning and right-wing parties. ''It seems to me that it's reasonable and not too far-fetched,'' he said.

REUTERS PD RK1835