Prime Minister Benjamin Netanyahu declared on Tuesday that Israel would never cede control of united Jerusalem nor retreat to the 1967 borders, according to a bureau statement.

The statement came after Egypt's foreign minister said in Cairo last week that Netanyahu was ready to discuss making "Arab Jerusalem" the capital of a Palestinian state.

Meanwhile, the Palestinian Authority could abandon its demand for a freeze on construction in East Jerusalem in exchange for an easing of the siege on Gaza and a halt to Israeli assassinations in the West Bank.

Egyptian Foreign Minister Ahmed Aboul Gheit met the foreign ministers of Egypt, France, Jordan, Spain and Tunisia in Cairo last week to revive the nascent Mediterranean Union. He briefed them about Netanyahu's talks with Egyptian President Hosni Mubarak a few days earlier, Israeli and European officials said.

Aboul Gheit reportedly said Israel's willingness to give the Palestinians "100 percent of the West Bank" and the readiness to discuss Arab Jerusalem as the capital of Palestine indicate "openness, goodwill and a change compared to the past."

According to the Arab foreign ministers, the Palestinians have agreed to waive their conditions for reopening the negotiations with Israel in exchange for other terms that Netanyahu could accept more easily.

The Palestinians previously had demanded a complete freeze on construction in East Jerusalem and resuming talks from the point they left off. Now their conditions are Israel stopping its assassinations and military operations in Palestinian cities; easing the blockade on the Gaza Strip and bringing in construction material to enable Gaza's rehabilitation; rezoning West Bank areas where Palestinians have full authority (A) and where they have only civil authority (B) - meaning, having the Israel Defense Forces withdraw to where it was before the Al-Aqsa intifada in September 2000; releasing certain Palestinian prisoners to the PA; and removing eight specific roadblocks in the West Bank.

If Israel agrees to these terms, the Palestinians will return to the negotiations even if the building in East Jerusalem continues and the talks do not pick up where they left off.

Aboul Gheit said the United States would issue a statement against Israeli construction in East Jerusalem and expressing its commitment to the territory of the future Palestinian state.

The visiting foreign ministers agreed that the difficulty in resuming the talks is due to Netanyahu and Palestinian President Mahmoud Abbas' refusal to announce their new positions publicly.