The Israeli prime minister, Ehud Olmert, today signalled his readiness to give up parts of Jerusalem to the Palestinians in an apparent concession ahead of a US-sponsored peace conference.
Mr Olmert noted that Israel had built a series of thriving Jewish neighbourhoods in east Jerusalem, but signalled that Israel's control of Arab areas was not necessary.
"Was it necessary to also join the Shuafat refugee camp, Sawakra, Walaje and other villages and define them as part of Jerusalem?" he asked in a speech during a ceremony to mark the sixth anniversary of former minister Rehavam Ze'evi's assassination.
"With that, I must confess it is possible to ask legitimate questions."
Control of Jerusalem has been one of the most contentious issues in the Israeli-Palestinian conflict.
Israel has claimed all of the city, including east Jerusalem which it captured in the 1967 war, as its capital.
The Palestinians want the eastern sector for the capital of a future independent state. Other Israeli officials have raised the possibility of giving up the Arab areas of east Jerusalem, but this was the first time that Mr Olmert has broached the highly delicate issue.
As Mr Olmert signalled his readiness to discuss Jerusalem, the US secretary of state, Condoleezza Rice, said she favoured a joint document before next month's planned conference, putting her close to the Palestinian position.
"Now we are talking about a joint document that will seriously and substantively address core issues. We have come quite a long way. We've got quite a long way to go," Ms Rice said after meeting the Palestinian president, Mahmoud Abbas.
Ms Rice and Abbas said the US-sponsored conference next month in Annapolis, Maryland, must be more than a "photo-op", amid fears of renewed violence should the meeting fail.
"We frankly have better things to do than invite people to Annapolis for a photo op," she said.
She added: "Israelis and Palestinians are making their most serious effort in years to resolve the conflict. Frankly, it's time for the establishment of a Palestinian state."
Mr Olmert has said he wants the conference to produce a set of principles that would provide the basis for further talks, rather than getting to grips with substantive issues such as borders, the future of Jerusalem and the right of return of Palestinian refugees.
"Everything should be clear in the conference and then we can go to negotiations in a specified time in order to reach a peace treaty," Mr Abbas told reporters after meeting Ms Rice, who began a four-day visit to the region yesterday to lay the groundwork for Annapolis.
After her first round of talks with Israeli leaders yesterday, state department officials were downbeat, indicating that the conference, called by George Bush, might be postponed because of the complexity of the issues.
Heads of negotiating teams have been appointed only in recent days - the former Palestinian prime minister Ahmed Qureia, last week, and the Israeli foreign minister, Tzipi Livni, yesterday. Officials said they would meet for the first time later this week, just six weeks before the tentative date of the gathering.
The Palestinians said they would not attend without a meaningful pre-conference document that covers all the main outstanding issues - borders for a Palestinian state, the extent of Israel's withdrawal from the West Bank, Jerusalem and the fate of Palestinian refugees.
Palestinians also insisted that the document include a solution for division of vital water resources, and no talks have been reported on that issue.
Ms Rice said she would not give up trying to bridge the gaps between Israel and the Palestinians "until I've given my last ounce of energy and my last moment in office".
Earlier, the UN's Middle East envoy said the UN should withdraw from the quartet of Middle East mediators unless the group addresses Palestinian human rights.
John Dugard, the UN human rights envoy for the Palestinian territories, told the BBC that the UN was doing itself little good by remaining a member of the quartet along with the US, Russia and the EU.
The group had failed to engage properly on Palestinian human rights and to deal with the split between the rival Palestinian factions of Fatah and Hamas, he said.
The militant Islamist movement Hamas seized the Gaza Strip in June, ousting Fatah, led by the Palestinian Authority president, Mahmoud Abbas, which controls the West Bank.
Mr Dugard said the rift was threatening the Palestinians' right to self-determination, and that the UN "should be playing the role of the mediator".
"Instead the international community has given its support almost completely to one faction - to Fatah," he said.
"That's not the role the UN should take."
The comments from Mr Dugard, a retired South African professor of international law, echoed the end of mission report by Alvaro de Soto, the former UN Middle East envoy, leaked to the Guardian in June.
Mr de Soto said the UN's image of impartiality had been badly damaged by its involvement in the quartet because the US dictated policy.
Mr de Soto also strongly criticised Hamas, with its "abominable" charter, its links to Iran and its abysmal record of stopping violence directed at Israeli civilians.
But he thought the decision to boycott Hamas after it won parliamentary elections last year was misguided.
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