May 14 (Reuters) - U.S. President George W. Bush, who arrived in Israel on Wednesday to mark its 60th anniversary, will discuss U.S.-sponsored peace talks between Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas. Olmert said ahead of Bush's arrival that the talks have produced "understandings and points of agreement" on some important issues but Palestinian officials expressed scepticism. After five months of talks, what separates the two sides? SECURITY: Ahead of Bush's visit, Middle East envoy Tony Blair said new security arrangements were being brokered by the United States to give Abbas's forces security control over an area in the northern West Bank totalling more than 360 square kilometres (140 square miles), the size of the Gaza Strip. The security arrangements would initially apply to the city of Jenin and dozens of surrounding villages, but Blair said it could be extended to other parts of the West Bank later. The envoy said Israel would retain overall security responsibility. Abbas has deployed hundreds of his security forces to Jenin to try to show that his government can exert control after a smaller deployment late last year in Nablus. Israel has said no peace agreement will be implemented until the Palestinians dismantle militant groups. Palestinians say Israeli restrictions and raids have hindered those efforts. Hamas Islamists, who seized control of the Gaza Strip in June after routing Abbas's Fatah forces, oppose the talks. BORDERS: Washington sees borders as the least problematic of the final-status issues and pushed for it to be tackled first. Israeli officials have reported "significant" progress on borders, but the Palestinians dispute that. Olmert has privately expressed willingness to give up "90-something" percent of the West Bank and 100 percent of the Gaza Strip as part of a final peace deal, Western officials say. Olmert is likely to offer at least 92 percent of the West Bank plus a land swap equivalent to 4-6 percent in exchange for Jewish settlement blocs that would be part of Israel, they say. A land corridor would connect the West Bank to Gaza. Abbas has demanded the equivalent of 100 percent of the West Bank and Gaza Strip, a land area he says totals 6,205 sq. km. (2,396 sq. miles). That is the amount of Palestinian territory Abbas estimates Israel captured in the 1967 Middle East war. Abbas has raised the possibility of amending the pre-1967 lines and may accept a 1.5-2 percent land swap provided the end result is a state on 6,205 sq. km, Palestinian officials say. JERUSALEM: There has been no sign of movement on Jerusalem. Olmert says talks have yet to touch on the issue, though some Israeli officials and the Palestinians dispute that. Olmert fears tackling Jerusalem could make the ultra-Orthodox Shas party quit his coalition, triggering new elections. Abbas wants Arab East Jerusalem as the capital of a future Palestinian state. Israel regards all of Jerusalem as its capital, but this is not recognised internationally. One of the biggest sticking points is how to administer the Old City, site of Islam's al-Aqsa mosque and Dome of the Rock, Judaism's Western Wall as well as Christian holy sites. Israeli Vice Premier Haim Ramon, a close Olmert confidant, has said the agreement being negotiated would not go into details like how the Old City would be administered. In a proposal to end the conflict in December 2000, then-U.S. President Bill Clinton called for Palestinian sovereignty over the area where al-Aqsa and the Dome of the Rock stand. Israel would have sovereignty over the Western Wall. REFUGEES: Neither side is ready to compromise on Palestinian refugees for now. Olmert confidants say Israel will not allow a formal "right of return" for millions of Palestinians to what is now the Jewish state. But they say a limited number of Palestinians could ask to settle in Israel on humanitarian grounds. Israel wants Abbas to give up the "right of return" in exchange for Israeli concessions on Jerusalem and borders. Abbas has pointed to language on the right of return in U.N. resolutions and an Arab League peace plan as possible models. (Reporting by Adam Entous, Wafa Amr and Mohammed Assadi, editing by Keith Weir)
A Palestinian man looks in a mirror as he tries on a Kufiah at Samed store, which sells Palestinian products, in Yarmouk camp, near Damascus May 12, 2008. On Thursday, Palestinians ...
