Palestinian Chief Negotiator Saeb Erekat warned on Friday that the Palestinian Authority was founded to establish the institutions for a Palestinian state, "not to keep Israel as a source of authority forever."

If Israel insists on maintaining control, he said, the Palestinian Authority "cannot stand — it's irrelevant," and he indicated it might be dissolved.

Erekat was speaking during a debate with Deputy Prime Minister Dan Meridor in New York.

Meridor said Israel wants to return to direct negotiations with the Palestinians and indicated that indirect talks brokered by US special envoy George Mitchell were making progress.

"I do hope in the coming weeks negotiations will skip over this strange proximity talks into real talks," he said. "We need to talk to each other and make the tough decisions needed, and if this is done we'll see progress this coming year."

Meridor said, however, that if there is no full agreement on the outstanding issues of Jerusalem, refugees, final borders and security "we will not let the negotiation collapse."

"It should not be all or nothing. We all wish for all, but if we can't get it, we should be very cautious not to risk everything on that," he said.

Erekat responded, saying the Palestinians never objected to negotiations but are insisting on a stop to settlement construction, which he stressed was not a condition but a key requirement in the 2003 roadmap leading to the establishment of a Palestinian state that was presented by the US, UN, European Union and Russia.

"This government of Israel has a choice, settlements or peace," he said. "They can't have both."

Erekat accused Meridor and Prime Minister Binyamin Netanyahu’s government of refusing to answer key questions: Will Israel begin negotiations where they left off in December 2008, and will it accept east Jerusalem as the capital of Palestine and the 1967 border as a baseline for a two-state solution?

"Israel has three options," Erekat said, a two-state solution, a single state including Jews and Palestinians, or what he called a continuation of Israel's "racism" and "apartheid system" in the West Bank where Arabs and Christians can't use roads reserved only for Israelis.

Erekat warned the Israelis that "if by the end of this year we do not have a two-state solution, you will sweat, you will sweat."

Meridor said the future of Palestinian refugees is the most crucial issue for Israel.

"It's more important than even the exact delineation of the border, which is a problem but we can agree on this: It's more important even than the security arrangements that are very important," he said.

Meridor said Erekat's statement that the Palestinian Authority has no right to negotiate the right of return of the refugees — that the refugees themselves will have to make the choice and they have the right both to return and to compensation — raised major problems.

Any peace agreement that did not settle the refugee issue would mean "there is no end to the conflict."

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