Prime Minister Ehud Olmert signaled on Tuesday Israel might have no choice but to share Jerusalem with the Palestinians in a peace deal, citing international pressure for compromise over the holy city.

"The world that is friendly to Israel ... that really supports Israel, when it speaks of the future, it speaks of Israel in terms of the '67 borders. It speaks of the division of Jerusalem," Olmert said in an interview with The Jerusalem Post.

Israel captured Arab East Jerusalem in the 1967 Middle East war and annexed it in a move that failed to win international recognition. It regards all of Jerusalem as its "eternal and indivisible" capital.

Palestinians want East Jerusalem to be the capital of the state they aspire to establish in the occupied West Bank and in the Gaza Strip.

The future of Jerusalem is one of the core issues Israel and the Palestinians agreed to tackle in peace talks they renewed after a U.S.-hosted summit in Annapolis, Maryland in November.

Olmert's comments appeared to be another move by the prime minister to prepare Israeli public opinion for the possibility of a deal that would loosen Israel's control of all of Jerusalem.

His deputy and close confidant, Haim Ramon, has said Israel should in future negotiate creation of a "special regime" that would govern some of the sacred sites in Jerusalem's walled Old City.

In separate remarks on Tuesday, Defense Minister Ehud Barak made clear there would be no sweeping changes in Israel's network of hundreds of roadblocks and checkpoints in the West Bank while negotiations went ahead.

Barak, addressing Israeli troops in the West Bank, said the barriers, condemned by Palestinians as collective punishment, helped to thwart attacks by militants.

"There is no chance of waging an effective fight against terror without a real and daily control of the field, and the checkpoints and roadblocks will remain," said Barak, a former prime minister who now leads the center-left Labour Party.

RESTRICTIONS

The United States, which hosted a Middle East peace conference in Annapolis, Maryland in November, has urged Israel to relax travel restrictions on Palestinians in the West Bank.

"In order to ease matters when it comes to the daily lives of Palestinians, we are trying to permit the opening of roadblocks and checkpoints on the fringes," Barak said.

"As of now, dozens of earth roadblocks have been removed as well as two of the 16 major checkpoints, and we may make more concessions here and there," he said.

Palestinian President Mahmoud Abbas, voicing frustration at the slow pace of change, said in a speech on Monday: "Each time (there is a meeting with the Israelis) they say they will remove (checkpoints) or have already removed some of them -- but I can honestly say they did not remove a single checkpoint."

Israel and the Palestinians have said they hoped to reach a peace agreement before U.S. President George W. Bush, who visits Israel and the West Bank next week, leaves office next year.

Olmert has already questioned publicly the wisdom of annexing outlying Arab neighborhoods of the city after the 1967 conflict. But he has insisted Israel would never agree to return to its pre-1967 borders.