A senior Palestinian peace negotiator says the terms of a proposed Israeli deal to restart the peace process, leaked to the press this week, are unacceptable. But he did not rule out a meeting at the United Nations next month between Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

In Germany today, Mr. Netanyahu said that no new agreement to stop settlement building has been reached.

The proposed Israeli deal to temporarily freeze settlement expansion in the West Bank, with exceptions made for all of East Jerusalem and what Israel calls the "natural growth" of existing settlements, was reported by the Guardian, a British newspaper, on Tuesday.

In return, the US, Britain, and France would push for tougher economic sanctions on Iran's nuclear program and Arab states would agree to make steps toward normalizing relations with Israeli, both things the Jewish state dearly wants. The broad outlines of the proposal were confirmed for the Monitor by an Arab government official.

But there has been considerable skepticism that President Obama would link the US strategy for dealing with Iran's nuclear ambitions directly to the Arab-Israeli peace process. And notably absent from several days of speculation has been any real comment from the Arab countries whose support would be crucial.

Palestinian peace negotiator Saeb Erakat, a close aid to President Abbas, says that nothing short of a full settlement freeze would be acceptable.

"A comprehensive settlement freeze is critical to ongoing efforts to restore credibility to the peace process, and to creating an environment for meaningful negotiations," he said in a written response to questions from the Monitor. "The terms of a comprehensive settlement freeze are clearly spelled out in the Road Map. They include East Jerusalem and so called 'natural growth.'"

The 2003 "road map" for peace, which Israel agreed to, called for a freeze on settlement growth, which Palestinians see as undermining the feasibility of the future state they hope to establish.

Netanyahu was in Germany Thursday, and in a joint press conference with Chancellor Angela Merkel appeared to pour cold water over recent optimism that a breakthrough was near. "These rumors are baseless, there is no decision or agreement. There is an attempt to narrow the differences. But reports of agreement are simply not true," he said.

Mrs. Merkel, meanwhile, appeared to insist that a full halt to settlement expansion – which has also been the public position of the Obama administration – was a necessary step toward restarting negotiations. "Stopping of the settlement [building] is very important," Merkel said. "Time is of the essence."

Land and settlements

Roughly 500,000 Israelis live in East Jerusalem and West Bank in settlements built since those areas were occupied by Israel in the 1967 war. The growth of those settlements, on what the international community deems to be Palestinian land, is a major deterrent to peace. The Palestinians say their growth has been used to fragment their own population and make the viability of a future state less tenable.

Mr. Erakat didn't rule out a possible meeting between Abbas and Netanyahu on the sidelines of next month's UN General Assembly meeting in New York, though he wouldn't confirm one either. Erakat said only that he "remains hopeful."

Nevertheless, signs continued to grow that the Obama administration is planning a major announcement of renewed talks sometime this fall.

"It's very clear that [the Obama administration] will make some sort of announcement on the resumption of negotiations," said an Arab diplomat in Washington, speaking on condition of anonymity. He expected the announcement to come at the September General Assembly meeting, possibly accompanied by a meeting between Netanyahu and Abbas.

The diplomat said the proposed agreement will also include unspecified steps toward normalization from some Arab countries including Morocco, Qatar, and several smaller Gulf states. He said, as he understands it, that the US is willing to push for harsher action on Iran in exchange for a partial settlement freeze. "What's new about this is the linkage with the Iran sanctions," the diplomat said.

Arab disagreement

If accurate, the proposal would be widely regarded in the Arab world as a significant American concession to Israel at the expense of the Palestinians, analysts and observers here said.

"This will be a fake peace process," says Cairo University political science professor Hassan Nafaa. "What we need is not another process."

Arab leaders such as Egyptian President Hosni Mubarak have pressed Mr. Obama for an accelerated timetable toward final status negotiations, meaning the firm contours of a Palestinian state.

Netanyahu has favored an incremental approach that delays difficult issues, such as the right of return for Palestinian refugees living in countries such as Lebanon, and the status of Jerusalem, which Israel insists is its "eternal capital."

If Obama is in fact acceding to a gradual process, he will essentially be siding with the Israelis from the very start, Professor Nafaa says.

"You're still delaying all the real issues," he says. "This is a wrong start for Obama. He is escaping the whole issue. He wants to be reelected and he is not going to pressure Israel. People here expected him to be much more solid."

Mohammed Kaush, writing in Jordan's al-Arab al-Youm, captured Arab skepticism. "Netanyahu is manoeuvring ... and wants to draw attention to side issues to buy more time and create new facts on the ground. This will extinguish any hope that a state or even autonomy could be created," he argued.

Will Saudi Arabia approve?

It remains an open question whether any Arab governments will agree to partial normalization. Egypt and Jordan already have full diplomatic relations with Israel, leaving little to gain on those fronts, which makes large and wealthy Saudi Arabia potentially crucial to the new venture's credibility.

Khalil el Anani, an analyst with the Al Ahram Center for Political and Strategic Studies in Cairo, describes improved relations with countries such as Qatar and Morocco as irrelevant to Israel's regional goals.

"Saudi Arabia is the real prize," he says. "But I don't think Saudi Arabia can open the subject with their own people about normalization."

Qatar hosted a longstanding Israeli trade mission for years and only severed relations in January over Israel's siege of Gaza. Morocco has long had quietly warm relations with the Jewish state, although never a formal treaty. Then-Israeli Prime Minister Ehud Barak attended the funeral for Morocco's King Hassan II in 1999.

Saudi Arabia strongly opposes any sort of incremental normalization measures and continues to back its 2001 Arab peace initiative, which offered full diplomatic relations with most of the Arab and Islamic world in exchange for a full Israeli withdrawal from all of the West Bank and Gaza.

"Saudi Arabia has made it very clear that they will not change their position … not even a symbolic step," Nafaa says.

Another open question is the role of the Egyptians. With their own Israeli peace deal in hand and warm relations with the US, they have long positioned themselves as indispensable negotiators – as well as diplomatic rivals to the Saudis, who have sought greater regional influence in recent years. Egypt, which is home to the Arab League, could provide political cover for any smaller states that agree to take normalization steps. "Egypt may be asked to lend political support for those Arab states that do take steps toward normalization," the Arab diplomat says.

Nafaa puts it less diplomatically. "Egypt gave up all of its cards. There's nothing for the government to do except pressure the Palestinians," he said.