Not a single word has been set on paper and there is no real agreement on the smaller points, let alone the core issues, of a peace deal between Israel and the Palestinians, PA Foreign Minister Riad al-Malki said on Wednesday. Negotiations between the two sides continue on almost a daily basis in an effort to reach a deal by the end of 2008, Malki told the Israel Council on Foreign Relations in Jerusalem. He struck a pessimistic note when he added that "until this moment," with four months left to go until that deadline, "they [the Israeli and Palestinian negotiators] did not start writing one single word on paper. The reason for this is that they do not really agree on any issue or sub-issue yet. "But they are trying very hard and they have exchanged positions, ideas and maps," Malki said. His words were echoed by Palestinian Authority Prime Minister Salaam Fayad, who had been originally scheduled to address the council but at the last moment sent Malki in his stead. In a statement that was read by Malki to the council, Fayad said, "I fear that the two-state solution is losing currency among both our peoples and with the world community beyond." Extremists could take over the institutions of both sides, he said. Their words followed a meeting on Sunday between PA President Mahmoud Abbas and Prime Minister Ehud Olmert that was likely their last face-to-face exchange before the Kadima primary on September 17. Israeli officials discounted Malki's pessimism, saying that progress had been made on important issues such as final borders and that it was logical that nothing had yet been formally set in writing, although clearly there were portions of negotiations' contents that had been written down. In what is seen as a sign of significant progress toward resolving the issue of settlement expansion, the cabinet is set to discuss an evacuation-compensation plan for settlers in Judea and Samaria on Sunday, according to the Prime Minister's Office. The initiative, first proposed by Labor and Meretz politicians years ago and being handled at the cabinet level by Vice Premier Haim Ramon, would compensate settlers who move within the Green Line. Sources in Kadima said the decision to discuss the initiative was politically motivated. "This government's days are numbered and there is no place for [discussing Ramon's initiative] before the diplomatic process has developed. This move seems to [have been] planned by someone who wants to prevent Olmert's successor from forming a coalition with Shas or other nationalist parties. "The discussion comes too soon, and [the] political aim and timing, on the Ramon-Olmert axis, is not coincidental," the sources said. This is the first time that the proposal has reached the cabinet level. According to left-wing groups that have worked on this issue, such as One House, thousands of settlers would be willing to evacuate peacefully in return for compensation. The main opposition to Ramon's plan is expected to come from Shas and other hawkish coalition partners who believe that no decision on the issue should be made less then two weeks before the primary after which the prime minister is expected to make good on his word and resign. The plan is also expected to be fiercely opposed by the Likud, National Union-National Religious Party and Israel Beiteinu. The Prime Minister's Office said, however, that there was no intention of making a decision on the subject right away and that no vote would be held on the issue at the present time. "The prime minister wants to hear what his ministers have to say," Olmert's staff said in a statement. The spokesman of the Council of Jewish Communities in Judea, Samaria and the Gaza Strip said, "The only evacuation pending is the evacuation of the government for the failures it has brought the citizens of Israel." Foreign minister Tzipi Livni, at a Kadima primary campaign event in Tel Aviv on Wednesday evening, came out against dealing with the evacuation and compensation bill now, saying it would be possible to push it forward only after "we know what the borders will be." "Only after the road map [peace plan] is implemented will it be possible to be move to the next level," she said. Livni's main rival in the Kadima race, Transportation Minister Shaul Mofaz, came out "adamantly" against the proposal. "This is a law that weakens Israel, and weakens its position in the negotiations, and I will not support it," he said. Sources close to Mofaz said the timing of bringing the bill to the cabinet now was odd, and indicated some discussions in the negotiations with the PA that Livni was heading were being kept from the public. The sources said Livni should let the public know what was being discussed and "stop talking in two voices." The cabinet discussion comes amidst harsh criticism by the Palestinians on Wednesday, including from Fayad and Malki, of settlement construction, which they say has increased sharply since the latest round of talks began in November 2007 in Annapolis, Maryland, contrary to Israel's agreement to refrain from such activity. Such building destroyed the viability of a future Palestinians state, so "we understand by such actions that Israel does not want a viable state to be created," Malki said. He declined to say what options the PA would consider should the idea of a two-state solution fall apart. But despite the dire warnings from Palestinian leaders that the two-state solution would soon be doomed, "We have to believe that a two-state solution is possible, but it depends on the attitude and the behavior of the Israeli government," Malki said. Fayad said in the statement that Israel had to choose between settlements and a two-state solution. The Palestinians, Malki said, were committed to reaching a peace accord by the end of 2008. It was possible, he said, if there was a desire on the Israeli side, that negotiations could continue in 2009 if that deadline was not met. "I need the same assurances from the Israeli side and the international community. I do not know if the international community will maintain its interest in pursuing peace in 2009 as it did in 2008, he said. He worried in particular that with the recent world events such as Russia's entry into Georgia, that the international community would lose its interest in solving the Palestinian-Israeli conflict. "We do need them here [the international community] he told The Jerusalem Post after the meeting. "We cannot progress in any way without them." The Palestinians, Malki told the council, were committed to working for peace now, 10 years from now and 100 years from now, because peace between them and the Israelis was in everyone's interest. "We will do our utmost to achieve it," he said, adding, "The sooner the better." For the Palestinians, he said, that solution means a withdrawal to the pre-1967 border. When it came to Jerusalem, where that border ran through the city, Malki said he respected Israel's decision to make Jerusalem its capital just as he hoped that Israel would likewise respect the Palestinians' decision that it was their capital as well. "I do believe that Jerusalem is so important and so holy for all of us. You know that we could share [it]," he said. Gaza was also an important part of the future Palestinian state, Malki said. "We have said it very clearly from the beginning that the problem in Gaza is a problem that we are determined to solve and we will solve it in due time." Should a final-status agreement be reached with Israel, it would be the PA's responsibility to bring Gaza back under the PA's control, he said. As an initial step in that direction, Abbas called in June for the start of a national dialogue among all the Palestinians factions, including Hamas. The PA had asked Egypt to create the "positive conditions and atmosphere" for such a dialogue, Malki said. Even today, Egypt was working on a bilateral level with the representatives of the various factions to see if a national dialogue could be held under the umbrella of the Arab League. "We are hopeful that all the factions will adhere to such an initiative and that this initiative will result in ending the separation between Gaza and the West Bank and will bring Gaza back under the full authority of the government leadership," Malki said. Once Gaza and the West Bank were reunited, one of the first steps would be the creation of a coalition government that was not partisan and not factional, he said. At that time the PA security services would be restructured. It would also be helpful to have a pan-Arab force deployed in Gaza to help ensure order. It is an idea, said Malki, which has the support both of the PA and of Egypt. He said he planned to raise the matter at the September 8 meeting of Arab foreign ministers in Cairo, should Egypt fail to open a debate on the issue. "We will assess then exactly if this idea is possible and practical and under what conditions," Malki said. Herb Keinon contributed to this report.