Israeli Prime Minister Ehud Olmert has offered the Palestinians a peace plan giving them 93 percent of the occupied West Bank, the Haaretz newspaper reported on Tuesday.
But the Palestinians denied the report.
The proposed border is at the heart of a broader plan that would compensate the Palestinians with the equivalent of 5.5 percent of the West Bank adjacent to the Gaza Strip and a route connecting Gaza to the West Bank itself.
However, Palestinian president Mahmoud Abbas would only receive the land and the overland connection once his forces retake the Gaza Strip from the Islamist Hamas movement, which seized power in the coastal territory in June 2007, the newspaper said.
But Palestinian negotiator Saeb Erakat said the report was "baseless."
"These are half-truths used by Israelis as a test balloon so they can blame the Palestinian authority should the negotiations fail," Erakat told AFP.
Haaretz said proposal has been offered in the context of U.S.-backed peace talks re-launched in November with the goal of resolving the decades-old conflict by the end of the year.
The proposed agreement however would be a "shelf agreement" to be implemented in the coming months and years, and would not immediately include the thorny issue of the future status of Jerusalem, Haaretz said.
The Palestinians have demanded mostly Arab east Jerusalem, which Israel occupied and annexed in the 1967 Six Day War, as their capital, while Israel considers the entire Holy City its "eternal, undivided" capital — a claim not recognized by the international community.
The agreement would however include a complex solution to the Palestinian refugee problem, allowing some refugees from the 1948 war to return to Israel while settling most of the 4.5 million refugees in the Palestinian state.
The seven percent of the West Bank annexed by Israel would include the major settlement blocs around Jerusalem — home to most of the 250,000 Israeli settlers in the territory — and some settlements in the northern West Bank.
Erakat dismissed the idea of a partial agreement. "We are not a bazaar," he said. "We want a complete Israeli withdrawal from the territories it occupied in 1967, including Jerusalem, and agreement on all the final status questions," he added.
Olmert’s spokesman Mark Regev declined to comment on the report but told AFP the "negotiations with the Palestinians are making progress on a number of subjects, particularly borders.
The negotiations, which have shown little visible progress since they were formally re-launched after a seven-year hiatus, were dealt a blow last month when Olmert announced he would resign later this year.