Early this week Prime Minister Ehud Olmert reportedly handed Palestinian Authority President Mahmoud Abbas Israel's detailed proposal for a "shelf agreement." Olmert offered an Israeli pullback from 93 percent of Judea and Samaria, "compensating" the Palestinians with territory from the Negev. A 40-km. link would provide unfettered passage between Gaza and the West Bank. The Palestinian state would be demilitarized and "right of return" for refugees would be exercised almost entirely within "Palestine." The Jerusalem issue would be put off by mutual consent. The Prime Minister's Office did not deny the proposal, reported in Haaretz, which aims to preserve settlement blocs such as Ma'aleh Adumin and Gush Etzion. Israel's hopes for Ariel, the strategic Jordan Valley, and other places were not revealed. According to the proposal, after the "shelf agreement" is signed, the Jewish communities on the Palestinian side will be evacuated in a two-stage process: the first, voluntary relocation and compensation; the second - presumably involuntary - contingent on the Palestinians fulfilling various commitments. By Tuesday night, however, Abbas spokesman Nabil Abu Rudeineh provided the Palestinian response: "The Israeli proposal is unacceptable, it is a waste of time. The Palestinian people will agree to a state with territorial contiguity only in a way that includes Jerusalem as its capital." Saeb Erekat, the lead Palestinian negotiator, described the report as full of "lies and half-truths" - a public relations campaign against the Palestinians. BEYOND the intriguing question of why the story was leaked by the Israeli side, what impresses is how faithfully and unwaveringly Erekat and Abu Rudeineh adhere to the Palestinian line. They demand an Israeli withdrawal to the June 4, 1967 boundaries; territorial contiguity; the "right of return;" Jerusalem as their capital; and the removal of all Jewish communities beyond the 1949 Armistice Lines. By contrast, to this day Israel has yet to officially declare which territories it insists on retaining in any deal with the Palestinians. This black hole in Israeli diplomacy explains why international public opinion believes, wrongly, that Israel should be, and even would be, prepared to withdraw to the 1967 "borders" assuming the details can be worked out. It will be an uphill battle to disabuse the world of the notion that Israel can safely return to the indefensible 1949 Armistice Lines - and to make a clear and unequivocal case for the borders the Jewish state can live with. GRANTED, IT sometimes seems as if the Abbas-Olmert talks are being conducted in an alternative universe. Discredited and unpopular, the premier has already announced he's stepping down. The chances of him winning Knesset ratification for any "shelf agreement" are close to nil. Abbas has limited influence in the West Bank, and none in Gaza, which he has lost to Hamas. A referendum among West Bank Palestinians alone would have limited legitimacy. Yet the bargaining is very real, taking place on several planes - between the two sides, among the parties' internal constituencies, and in the arena of global public opinion. As to substance, the Palestinians may well be right that the issue of Jerusalem and the holy places can't reasonably be postponed. For what future would a shelf agreement have if, at the end of the day, no accord was reached on Jerusalem? Hard-nosed specificity trumps vague, feel-good pronouncements. For any deal to garner support from the Israeli mainstream it must nail down the tough issues, especially in the security realm. For instance, would "Palestine" have the sovereign right to invite Iran to establish a military presence on its territory? The Palestinians are demanding an airport and seaport. They want an army. What is Israel's position on these? THE STATUS quo is untenable politically, diplomatically and demographically, making a two-state solution the preference of most Israelis. Yet Palestinian spokesman are saying that unless Israel capitulates to their maximalist demands, they will promote a one-state solution - aimed at the demographic destruction of Israel. That's why Israel needs to define, finally, the boundaries of the Jewish state in the context of its vision for a viable two-state solution - and to place the onus for failing to achieve "two states for two peoples" squarely where it belongs: on 100 years of Palestinian intransigence.