Israeli Prime Minister Ehud Barak's inner "peace" cabinet meets on Friday and is expected to accept Palestinian President Yasser Arafat's proposal for marathon peace talks.
It appeared the talks would go ahead despite the killing of Ofir Rahum, a 16-year-old Israeli who was on his way to meet his Palestinian online lover. His bullet-riddled body was found near the West Bank town of Ramallah on Thursday.
Israel and the Palestinian Authority both condemned the killing, the latest in a 16-week-old Palestinian uprising in which at least 309 Palestinians, 45 Israelis and 13 Israeli Arabs have been killed.
Barak, speaking to Israelis in an election campaign broadcast, said painful concessions would have to be made to reach peace with the Palestinians, including handing control of some of Jerusalem's Old City to a "special authority".
Arafat, who met Israeli Foreign Minister Shlomo Ben-Ami in Cairo on Wednesday, said Israel had yet to respond to his proposal to meet in Egypt to try to forge a deal to end the 52-year-old conflict.
The two sides have been holding peace talks to try to secure an agreement before Israeli prime ministerial elections on February 6. Opinion polls show rightwinger Ariel Sharon will trounce Barak.
CABINET EXPECTED TO AGREE TO TALKS
Israeli diplomatic sources said Barak's inner cabinet would convene at midday (1000 GMT) and was likely to agree to the talks.
"Most of the members of the peace cabinet support such a decision and...Barak does not intend to prevent such a decision, but he thinks there is almost no chance of reaching an agreement before the Israeli election," an Israeli source said.
Arafat suggested the sides meet in the Egyptian Red Sea resort of Taba for negotiations similar to round-the-clock talks held there in 1995 to forge an interim peace deal.
"We agreed to that and we have informed the co-sponsors of the peace process - the United States and Russia - that we are willing to do this," Arafat told reporters in Gaza when he returned from Cairo.
Gun battles between Israeli troops and Palestinian gunmen erupted near the Jewish settlement of Netzarim in the Gaza Strip late into Thursday night. No casualties were reported.
In a campaign television broadcast, Barak said he would never hand to Palestinians control of the Temple Mount, Judaism's holiest site and revered by Muslims as al-Haram al-Sharif.
"In the Old City there will be a special authority that will promise freedom of access to everything. The Western Wall, the Jewish Quarter and the Mount of Olives will remain under our sovereignty forever," he said.
"In order to reach a peace agreement and to end the conflict with our neighbours we will have to concede on most of the territories, more than 90 percent of Judea and Samaria (biblical names for the West Bank)," Barak added.