Special report: Palestine-Israel Relations

    JERUSALEM, Sept. 4 (Xinhua) -- Some Arab neighborhoods in east Jerusalem could be the capital of a future Palestinian state, local daily Jerusalem Post on Thursday quoted Israeli Defense Minister Ehud Barak as saying.

    "Our basic position is that Jerusalem is the capital of Israel, but that we can find a formula under which certain neighborhoods, heavily populated Arab neighborhoods, could become part of the Palestinian capital in a peace agreement," Barak was quoted as saying in an interview by the pan-Arab al-Jazeera channel Wednesday.

    The Palestinian capital will of course include all of the neighboring Arab villages around Jerusalem, the defense minister added.

    Meanwhile, Yasser Abed Rabbo, a senior Palestine Liberation Organization (PLO) official and also a Palestinian negotiator, on Thursday rejected Barak's proposal.

    He said in a statement that east Jerusalem is not a subject of torn neighborhoods; it is a unified unit connected to the West Bank, which was occupied by Israel in 1967.

    "We won't accept less than all east Jerusalem and the West Bankas one territorial unit occupied by Israel in 1967," said Abed Rabbo, adding "According to the international law, Israel has no right to annex or own any part of east Jerusalem."

    On the right of return for Palestinian refugees, Barak said it would ever be accepted by Israel, according to The Jerusalem Post.

    "No Israeli prime minister, from the right or left...will agree to accept even a single Palestinian refugee into Israel based on the right of return," he said.

    The defense minister also denied that Israel was expanding West Bank settlements, saying that "We are not expanding... We did not announce even a single new settlement."

    When asked whether a peace deal between Israel and the Palestinians was possible this year, Barak said, "I am not sure whether the gaps are close enough."

    On Wednesday, Palestinian Foreign Minister Riyad al-Maliki told the Israel Council on Foreign Relations in Jerusalem that not a single word has been set on paper and there is no real agreement on the smaller points, let alone the core issues of a peace deal between Israel and the Palestinians, including the status of Jerusalem, refugees and settlements.

    Israeli and Palestinian leaders pledged at a U.S.-hosted peace conference in Annapolis last November to reach a comprehensive peace deal by the end of the year. Yet little visible progress has since been achieved.

    The peace efforts are also challenged by the political turmoil in Israel, where Israeli Prime Minister Ehud Olmert faces fraud and bribery probes and would step down as early as in mid-September, and by the conflict between the pragmatic Fatah and the hardline Hamas at the Palestinian side.