Olmert hints Israel may be willing to split up Jerusalem

The Israeli Prime Minister, Ehud Olmert, hinted yesterday that he might be willing to split Jerusalem, by questioning for the first time whether certain Palestinian neighbourhoods needed to be part of what Israel officially sees as its undivided capital.

Mr Olmert's tentative – and reversible – step towards a possible compromise on the future of the city, an essential requirement for any final two-state solution to the conflict, was the first he has personally made in public.

It came as the US Secretary of State, Condoleezza Rice, went out of her way to emphasise that the forthcoming Middle East conference in Annapolis, Maryland – which she sees as a stepping stone to full negotiations on a final deal – needed to be substantive. "Frankly, it is time for the establishment of a Palestinian state," she said after meeting the Palestinian President, Mahmoud Abbas, in Ramallah.

Dr Rice came close to sidelining a statement on Sunday by Mr Olmert that an accord between the two sides was not a prerequisite of the conference, saying that "we frankly have better things to do" than invite participants "to a photo-op".

Mr Olmert used his speech at a Knesset ceremony to commemorate the assassination six years ago of the right-wing minister Rehavam Zeevi to ask: "Was it necessary to also add the Shuafat refugee camp, Sawakra, Walaje and other villages and define them as part of Jerusalem?"

Sawakra and Walaje in particular are, geographically, relatively outlying districts of Arab East Jerusalem. But Israeli officials and media swiftly interpreted his remarks as indicating a message that Israel was prepared for concessions in advance of the Annapolis talks.

Mr Qureia made it clear last week that the emergency Palestinian leadership in Ramallah wanted and expected a commitment by Israel to the designation of East Jerusalem as the capital of a future Palestinian state to form part of a pre-Annapolis accord.

It was not immediately clear whether Mr Olmert was seeking to prepare Israeli public opinion for an agreement in principle to divide Jerusalem – which even in the abstract would infuriate the Israeli right – or merely to demonstrate to Ms Rice, among others, that Israel is not inflexible about a possible agreement, or both.

Mr Qureia also said last week that an equal landswap between the West Bank and Israel could also be part of the deal on borders. While Israel argues that such a swap – which would mean Palestinians keeping an equivalent in size to all the West Bank territory – would be a significant concession on its own part, Mr Qureia's declaration largely made headlines for implying that the Palestinians were prepared to allow Israel to keep the biggest Jewish West Bank settlements.

Eli Yishai, the leader of the Sephardic party Shas, warned Ms Rice on Sunday that an agreement to divide Jerusalem would spell the break-up of Mr Olmert's coalition. Avigdor Lieberman, head of the right-wing Yisrael Beiteinu Party, also in the coalition, has similarly warned that concessions could lead to such a break-up. Mr Lieberman told Ms Rice the timing of the Annapolis talks was a "mistake".

Even if Mr Olmert's remarks last night presage an agreement to divide Jerusalem – if and when a final peace deal is made – there remain formidable obstacles in the negotiations which Ms Rice will now use her good offices to advance. In particular, Israel is pressing Mr Abbas to concede that the families of refugees who fled or were driven out of their homes in 1948 will not return to Israel. Palestinian officials argue this would be extremely problematic for him, especially ahead of actual final-status negotiations.