Israel coalition talks amid clashes
Such an accord could raise hopes of reviving peace talks with the Palestinians, although violence has flared once again.
Israeli troops shot and killed two Palestinians Monday, following the killing of Jewish settler Tsahi Sasson by Palestinian gunmen as he was driving along a road near Jerusalem late Sunday.
Ziad Abu Sway, 20, was killed and a second man, Mohammed Barmil, 47, seriously wounded when Israeli soldiers fired on a bus near the West Bank village of Al Khader, Palestinian witnesses and hospital sources said.
Atef Ahmed al-Nabulsi was shot dead near the West Bank city of Ramallah and was taken by Israeli soldiers to a military base. Israeli security sources confirmed Nabulsi had died.
More than 400 people -- the vast majority Palestinians -- have died in clashes since Sharon's visit to a Jerusalem site sacred to Muslims in September.
Sharon has demanded that Palestinians end the violence before peace talks resume.
Arab leaders meet
Sharon, who oversaw Israel's 1982 invasion of Lebanon as defence minister, has recently been seen as trying to soften his image, but Arabs remain suspicious.
Palestinian Authority President Yasser Arafat said he was keeping a close eye on the coalition talks and would give Sharon a chance to prove he was serious about peace.
"We will judge him according to policies he takes as prime minister and with whom he will form a government," Arafat said.
"We have to wait and see."
Arafat is meeting Egyptian President Hosni Mubarak in Cairo Monday to discuss the changing political landscape following Barak's defeat, by a double-digit margin, at the ballot box.
On Sunday Arab foreign ministers ended a two-day meeting in Jordan's capital, Amman, calling on Sharon to resume peace talks at the point where Barak left off -- a position Sharon has rejected.
In talks in Taba, Egypt, which ended nine days before the Israeli election, Barak was reported to have agreed to allow the formation of a Palestinian state in territory that included all of Gaza, 95 percent of the West Bank and most of Arab East Jerusalem.
But according to Israeli radio, Barak has now told his Cabinet that the new leader will not be bound by any tentative agreement between his government and the Palestinian Authority and proposals put to the Palestinians have been withdrawn.
Barak continues to lead a caretaker government until Sharon can form one of his own.
Failing the formation of a government with Barak’s Labor Party, Sharon’s Likud party would have to join forces with right-wing nationalist and religious parties.
Sharon must form a government by a late March deadline or face a new election for prime minister and parliament.
Sharon aide Eyal Arad said the prime-minister elect had emerged from Sunday's round of coalition talks optimistic about chances of establishing a left-right government "fairly quickly."
Labour's Shimon Peres, a Nobel peace laureate and a former prime minister, told Israeli radio that Sharon's offer of two major ministerial portfolios was "very serious" and chances for a national unity government were "50-50."
Former U.S. President Bill Clinton praised Sharon in a speech to a Jewish group in Miami for offering Barak the post of defence minister and Peres the foreign ministry.
Israeli media reported Barak had rejected Sharon's offer, saying he would stick to a promise to leave politics after his electoral defeat.
Arad also said that Sharon was already weighing goodwill gestures towards the Palestinians.
"Sharon is currently looking into various confidence-building measures between Israel and the Palestinians in order to improve the atmosphere and proceed towards peace."
On Monday Israel allowed Gaza International Airport, the Palestinian's only air link to the outside world, to open for nine hours to allow Palestinians to travel to make the Haj.
Israel has frequently closed the Gaza airport during the recent violence. Israel says this is for security reasons, the Palestinians say it is a form of collective punishment.
Reuters contributed to this report.
Sharon not bound by current peace offer, Barak says
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