As she visits the Middle East this week, USSecretary of State Condoleezza Rice is pressing Israeli and Palestinian leaders to commit to confidence-building measures and a timetable ahead of an upcoming US-sponsored peace conference in Annapolis, Md.

Israel has resisted a timetable, but Prime Minister Ehud Olmert said in a major speech Sunday night that he is ready to begin accelerated peace talks – even on final-status issues such as Jerusalem.

Mr. Olmert's statement reiterated recent remarks by Israel's deputy prime minister indicating that Israel must be prepared to discuss giving up parts of Jerusalem – potentially dividing the city – in upcoming negotiations with the Palestinians.

"It is in Israel's interest that all the Jewish neighborhoods in Jerusalem receive international recognition and that Arab neighborhoods like Walajeh and Shuafat are transferred to the Palestinians," Haim Ramon, the vice premier, told cabinet members last month.

Whether intended as a trial balloon or as a genuine attempt to get Israelis accustomed to the idea of turning Arab neighborhoods over to Palestinian control, the message sent shock waves through both Israeli and Palestinian society.

Many Palestinian residents opposed

Those feeling skittish about the city's potential partition aren't just Israelis – who traditionally take the position that Jerusalem should be Israel's united capital – but also Palestinian Jerusalemites, who fear that their standard of living will fall if they come under the control of the Palestinian Authority (PA).

"I don't want to have any part in the PA. I want the health insurance, the schools, all the things we get by living here," says Ranya Mohammed as she does her afternoon shopping in Shuafat.

"I'll go and live in Israel before I'll stay here and live under the PA, even if it means taking an Israeli passport," says Mrs. Mohammed, whose husband earns a good living from doing business here. "I have seen their suffering in the PA. We have a lot of privileges I'm not ready to give up."

Nabil Gheet, a neighborhood leader who runs a gift and kitchenware outfit in the adjacent town of Ras Khamis, also resists coming under the PA's control.

"We have no faith in the Palestinian Authority. It has no credibility," he says, as his afternoon customers trickle in and out. "I do not want to be ruled by Abbas's gang," he says, referring to Palestinian President Mahmoud Abbas.

The road to reconciliation

Such sentiments are fraught with complications. On the one hand, Palestinians say that there can be no peace with Israel until the creation of a Palestinian state with Jerusalem as its capital – suggesting that there is no road to reconciliation without some kind of redivision of the city. On the other, Palestinians who live in Jerusalem have enjoyed most of the benefits of Israel citizenship for the past 40 years – healthcare, national insurance, universal education, and other social services – and don't want to forfeit them. Moreover, many fear that a ceding of their neighborhoods to the PA will cut off access to Jerusalem.

Meron Benvenisti, a historian and former deputy mayor of Jerusalem, says that denying Palestinians, most of whom hold Israeli-issued permanent residency cards, the right to live in Israeli Jerusalem might be illegal. It'd be the equivalent, he says, of stripping people of their citizenship en masse.

"You can't just decide to cut off people. It's like cutting off parts of a living organism. Secondly, it's immoral, because you've told people this is their lot in life decades ago, and they got used to it," says Mr. Benvenisti, author of several books on Jerusalem. "This is especially so when there's no Palestinian state on the other side of the border. One day you're part of Jerusalem, and the next day you're part of – what? You can't make them residents and then suddenly revoke their status. How will they get from here to there? Who will be their policemen?"

The specific complications he raises are just a few of the questions that Israeli and Palestinian negotiators face as they try to reach some kind of "declaration of principles" that they can bring to Annapolis, where the US plans to host an international peace summit before the new year.

Jerusalem's recent history

Israel conquered East Jerusalem in the 1967 Six-Day War, and while Israel officially annexed the territory, it is considered occupied by Palestinians and much of the international community. The creation of a Palestinian state with Jerusalem as its capital is a cornerstone of the Palestinian national movement.

In kind, keeping Jerusalem an undivided city has long been a key facet of most mainstream Israel political parties' platforms.

Throughout the 1980s, Israel continued to expand the "Jerusalem envelope," as it is dubbed, building several large Jewish neighborhoods wedged between existing Palestinian ones. The prevalent Israeli theory at the time was that this would strengthen Jerusalem and prevent the redivision of the city. Over the past five years, Israel has been building the controversial separation wall, which also comes into play: some of the "negotiable" neighborhoods in question are on the Israeli side of the wall. Some Jerusalem residents already have to pass through the wall and its many checkpoints to get to jobs and schools.

Key issue in negotiations

Today, Israelis' fears for the future of the city run the gamut, from maintaining safe access to holy sites and security for residents of the Jewish quarter to worries that a redivision of the city could put downtown
Jerusalem neighborhoods in the range of Palestinian militants' rockets. [Editor's note: The original version incorrectly stated the status of the West Bank.]

Still, a key part of the drive for Israeli-Palestinian détente is to find an equitable solution for Jerusalem.

In a poll issued last year by the Palestinian Center for Policy and Survey Research in Ramallah, 39 percent of Palestinians supported and 59 percent opposed a compromise in which East Jerusalem would become the capital of the Palestinian state, with Arab neighborhoods coming under Palestinian sovereignty and Jewish neighborhoods coming under Israeli sovereignty. Among Israelis, the survey noted, about 38 percent would agree and 60 percent would disagree with such an arrangement.

Indeed, the traditional red lines in the Jerusalem debate are shifting a bit. One of the most right-wing members of the Israeli cabinet, Strategic Affairs minister Avigdor Lieberman, said he will not oppose a plan to turn some Arab neighborhoods over to the control of the PA. But he also warned this week that he will withdraw his party from Olmert's government, denying it a majority, unless there is "a complete end to all Palestinian terrorist activities" before the start of the Annapolis summit.

Secret talks reportedly yield agreement

The Israeli newspaper Maariv reported that two veterans in Israeli-Palestinian peacemaking, Yossi Beilin and Yasser Abed Rabbo, have been meeting secretly and have reached a document agreeable to both sides that lays out possible solutions to the conflict. In it, Palestinians showed a willingness to be flexible on their historic claim to a "right of return" to houses that are now inside Israel proper, accepting instead a mixed solution that would include some refugees returning to the Palestinian state-to-be, some to Israel, and many other to be resettled in third countries. Israel's outlook showed a willingness to accept the concept to returning to the 1967 borders by doing land swaps, meaning that it would annex settlement blocks but give the Palestinians a tract of land of the same size elsewhere.

Neither side was willing to comment on the report.