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 Both sides have low expectations as they head into the U.S.-sponsored negotiations in Jerusalem, the third attempt since 2000 to agree on the terms of a Palestinian state alongside Israel.
The prisoner release, billed as the first of four over coming months, was meant to bring the Palestinians back to the table after a five-year halt of negotiations.
However, a top Palestinian official warned Wednesday that talks could quickly collapse because of Israel's continued settlement building on war-won lands sought for a Palestinian state. Over the past week, Israel made three announcements on promoting plans for a total of more than 3,000 new settlement apartments in the West Bank and east Jerusalem.
"The talks might collapse any time because of the Israeli practices," Yasser Abed Rabbo, an adviser of Palestinian President Mahmoud Abbas, told Voice of Palestine radio Wednesday.
In Israel, dovish politicians expressed guarded hope, while hardliners were pessimistic.
Cabinet Minister Yaakov Peri of the centrist Yesh Atid party said time is running out and that both sides must push hard for a deal. "We won't have a lot more chances to solve this conflict," he told Israel Army radio.
Deputy Defense Minister Danny Danon from the ruling Likud party argued that Israelis today would not accept a peace proposal made by Netanyahu predecessor Ehud Olmert.
Such an agreement "will not win support, not just from me, but also from the Likud and, I think, most of the nation," Danon told Israel Radio.
The Palestinians want a state in the West Bank, Gaza and east Jerusalem, lands Israel captured in 1967. Since that war, Israel has built dozens of settlements there that are now home to more than half a million Israelis and are deemed illegal by most of the international community.
Since the first talks in 2000, the outlines of a deal have emerged -- a Palestinian state in the vast majority of the war-won lands, with border adjustments and a land swap that would enable Israel to annex land where most of the settlers live.
The last formal peace talks in the region took place in 2007 and 2008 when Abbas and Olmert met dozens of times, mostly in Jerusalem. Before those talks broke down, Abbas proposed a swap of 1.9 percent, while Olmert asked for 6.5 percent.
When Olmert's successor, Benjamin Netanyahu, took office in 2009, he adopted tougher starting positions. Netanyahu said he would not consider a partition Jerusalem and rejected Abbas' demand that the pre-1967 lines be the starting point for border talks.
Abbas, in turn, insisted on a full settlement freeze as a condition for talks. He feared that the vast gaps between him and Netanyahu would render any deal impossible, but that in the meantime, Israel would exploit the negotiations as a cover for continued settlement building.
Netanyahu has argued that anything can be discussed in talks, including the settlements, and dismissed Abbas' demands as pre-conditions.
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 In the end, the Palestinians returned to negotiations without a settlement freeze, for fear of harming ties with the U.S. if they were seen as derailing U.S. Secretary of State John Kerry push this year to restart talks.
Kerry has assured Abbas that the U.S. considers the 1967 lines as the basis for border talks, even if Netanyahu does not, according to Abbas aides.
Preliminary talks were held two weeks ago in Washington, and the U.S. envisions negotiations for up to nine months.
Later Wednesday, negotiators were to meet in Jerusalem, though both sides refused to discuss details about the time and venue. The next round is to be held in the West Bank.
Israel is represented by Justice Minister Tzipi Livni and Netanyahu aide Yitzhak Molcho, while Abbas advisers Saeb Erekat and Mohammed Shtayyeh speak for the Palestinians.
Abed Rabbo said the two sides are to tackle borders and security arrangements first. Previous negotiations, in 2000 and in 2007-2008, broke down before the sides got to the explosive issues of dividing Jerusalem and resettling millions of Palestinian refugees and their descendants.
Meanwhile, the 26 released Palestinian prisoners were giving jubilant receptions in the West Bank and Gaza where they arrived early Wednesday. Thousands of Palestinian well-wishers greeted the prisoners, seen in their communities as heroes in the struggle for independence.
In all, 104 prisoners are to be freed during the negotiations.
A majority had already served at least 20 years for killings, including of Israelis and suspected collaborators. Their release sparked angry protests from some of the relatives of their victims who argued that the government had no right to free killers.
The Palestinians argue that the deadly attacks were carried out at a time of conflict, before the start of peace talks, and that Israel should have released them long ago.
Meanwhile, Israel carried out an air strike against rocket-launching equipment in the Gaza Strip, the army said. No one was killed in the attack.
The air strike was in response to a rocket fired into Israel the day before by militants from the area, the army said. The rocket landed in an open area in Israel's south and caused no injuries.
The air strike came amid increased tensions in Israel's south. On Tuesday, Israel shot down a rocket launched from Egypt toward a Red Sea resort.
[Associated
Press; By DANIEL ESTRIN and MOHAMMED DARAGHMEH]
Daraghmeh reported from
Ramallah, West Bank.
Copyright 2013 The Associated
Press. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
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