Israeli Prime Minister Mr Ariel Sharon has predicted a Palestinian state will be created after "terrorism" ends.
In an interview with Israel's Channel 2 TV, Mr Sharon also said that Israel's security chiefs had advised him not to expel Palestinian leader Mr Yasser Arafat, as demanded by several hardline ministers in his Cabinet.
Referring to the Palestinian Authority in the West Bank and Gaza, Mr Sharon said that "in effect" a Palestinian state existed already.
Asked if he favoured creating a Palestinian state formally, he replied: "In the end, when terrorism will end . . . there will be a political settlement that will also bring this about. I favour reaching a political settlement".
The US is promoting a peace plan that foresees a Palestinian state with provisional borders by next year, and a final peace settlement by 2005. Israel has expressed reservations about the plan, but Palestinian officials say it is acceptable in principle.
Mr Sharon was asked why he opposed the recommendation to expel Mr Arafat - made in public last Tuesday by Foreign Minister Mr Benjamin Netanyahu.
Israel's security services "recommended not to do this now because the damage to Israel would be greater," Mr Sharon said.
PA