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Israeli Prime Minister Ariel Sharon has told his right-wing Likud party that Israel will have to give up some settlements on occupied land to attain peace with Palestinians, senior political sources said on Tuesday.

The settler movement, banking on stout support within Likud and allied nationalist parties in Sharon's coalition, vowed to campaign against any evacuation of their communities which have been frequent targets of a Palestinian uprising.

A Palestinian woman takes cover behind her son's grave after nearby Israeli soldiers fired warning shots during the last prayers of Ramadan at the El Sohada cemetery outside Gaza city Nov. 25, 2003.  [Reuters]

Sharon has raised hackles on both sides by hinting he could uproot some isolated Jewish settlements and summarily draw the borders of a Palestinian state should a U.S.-backed peace plan, now stymied by mutual non-compliance, ultimately collapse.

In an apparent sign of revived U.S. interest in promoting the peace "road map," senior U.S. official William Burns will visit Israel and the Palestinian territories next weekend for the first time since August, the State Department said.

Along with the planned diplomatic moves, the United States informed Israel it would deduct $289.5 million from a $9 billion package of U.S. loan guarantees in response to settlement activities in Palestinian areas, sources in the United States familiar with the decision said.

Deductions for settlement expansion were also made from $10 billion in U.S. loan guarantees granted a decade ago to help Israel absorb a flood of immigrants from the former Soviet Union.

DEDUCTIONS NO SURPRISE

Israel had been awaiting a final figure for the deductions, including possible cuts relating to the construction of the controversial barrier it is building through the West Bank.

The United States, Israel's main ally, has criticized the projected course of the barrier, which would incorporate major settlement blocs and truncate territory where Palestinians seek statehood.

Israel says the West Bank barrier of electronic fencing, trenches and walls is to keep suicide bombers out of the Jewish state.

Sharon also faces U.S. pressure to do more to unblock peacemaking and bolster the position of new moderate Palestinian Prime Minister Ahmed Qurie against popular street militants.

Political sources said Sharon, a patron of settlement on land Israel occupied in the 1967 Middle East war, reiterated at a stormy meeting of Likud legislators on Monday that "painful concessions" were necessary for peace.

"Ultimately we will not be in all the places we are now," he told the meeting. "I do not rule out unilateral steps...for our own interests, in our favor."

He declined to elaborate. "Sharon has nothing concrete in mind yet," said a senior source close to the prime minister.

Palestinian President Yasser Arafat dismissed Sharon's remarks as a sign that Israel was not committed to the U.S.-backed peace plan in the first place.

"This means they don't want to make peace. It is against the road map," Arafat told Reuters on Monday. The United States and Israel refuse any contact with Arafat, accusing him of inciting violence, a charge he denies.

The road map charts reciprocal steps including an end to Palestinian militant attacks and Israeli pullbacks from occupied land en route to a Palestinian state in the West Bank and Gaza.

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