The Israeli government will discuss for the first time a plan to compensate Jewish settlers who agree to voluntarily leave their homes in the occupied West Bank, Prime Minister Ehud Olmert's office said on Wednesday.

The settlement issue has clouded U.S.-brokered peace talks between Israel and the Palestinians launched in November with the aim of reaching a statehood deal by early 2009.

A statement from Olmert's office said that at a meeting on Sunday, the cabinet would debate a plan proposed by Deputy Prime Minister Haim Ramon "on the issue of voluntary relocation and compensation" of Jewish settlers from the West Bank.

The issue will not be brought to a vote, the statement said.

A spokesman for Ramon said it was the first time the cabinet would discuss such a plan. He gave no further details.

Israel wants to hold onto several major Jewish settlement blocks in any future peace deal. The Palestinians say these and other settlements will deny them a viable state.

Ramon had said months ago he was developing a compensation plan for West Bank settlers to try to minimize their resistance to withdrawing from the territory Israel captured in the 1967 Middle East war as part of a peace deal.

Olmert, dogged by a corruption scandal, has vowed to resign after his Kadima party chooses a new leader later this month, and has sought to draw up a document of understandings with the Palestinians before he steps down.

Palestinian President Mahmoud Abbas has rejected the idea of any partial peace agreement.

One Israeli cabinet member criticised Olmert's decision to raise the proposal so near to Kadima's Sept 17 election.

"The government is now a transition government and shouldn't start heading into situations that are not agreeable to some of the parties in the coalition," said Industry and Trade Minister Eli Yishai of the ultra-Orthodox Shas party.

The YESHA settler's council said in response: "The only evacuation that will happen soon is the evacuation of Olmert's government, including Haim Ramon, from public life."