Israeli security officials said on Wednesday the army would relax its West Bank blockade to bolster Palestinian Prime Minister Ahmed Qurie in a power struggle with Yasser Arafat delaying U.S.-backed peace moves.

Security sources said Defense Minister Shaul Mofaz had also decided in principle to remove 10-20 Jewish settlement outposts on occupied West Bank land. He is to hold talks in Washington with U.S. officials who want the outposts uprooted.

Israel's army chief jarred the government last week when he said the clampdown was driving Palestinians into the arms of militants, undermining leaders like Qurie who want peace talks.

"The point of these steps is both to help Qurie consolidate his position vis-a-vis Arafat and the militants and satisfy the Americans who have been very critical of outposts," a senior Israeli security source said.

No timetable for the moves was given, and Palestinian residents reported no easing of restrictions that have largely trapped them in their towns and crippled their economy.

An army statement said armored forces would reduce their presence in and around West Bank cities except for Nablus and Jenin, bastions of Islamist militants. But there was no intention to remove a network of checkpoints and roadblocks.

It said troops would continue raiding Palestinian areas if needed. Israel says its measures are a must to stop suicide bombers. Palestinians say incursions obstruct cease-fire efforts.

Palestinian political upheaval has impeded diplomacy to carry out a U.S.-sponsored "road map" to end violence and create a Palestinian state by 2005 alongside a secure Israel.

Qurie's struggle to gain cabinet powers over security services dominated by Arafat, the Palestinian president, has delayed the formation of a government for over a month.

Arafat converted Qurie's eight-member "emergency" cabinet into a caretaker government on Tuesday, hours before its 30-day term expired, allowing more time to resolve the dispute.

QURIE-ARAFAT DISPUTE BOILS ON

Ministers said they were seeking a solution but a Qurie-Arafat meeting during a session of the ruling Fatah faction ended with the premier walking out without a word to reporters and looking troubled.

Arafat met Fatah leaders to try and resolve the impasse but the talks, which lasted for about five hours, ended without progress. They were to continue on Thursday. Qurie was absent from the late-night meeting.

Palestinian foreign minister-designate Nabil Shaath said the meeting was called in the continuing attempt to decide on the powers of the prime minister, interior minister and national security council, which Arafat chairs.

Washington says Palestinians must establish democratic, accountable security services to qualify for independence. The United States and Israel want to sideline Arafat, saying the former guerrilla leader incites violence. He denies the charge.

Arafat opposes Qurie's choice of General Nasser Youssef as interior minister with control over security forces. He fears losing control over security would relegate him to a figurehead.

Qurie's predecessor, Mahmoud Abbas, quit in September after a similar dispute with Arafat over security powers.

Israeli Prime Minister Ariel Sharon's office said he would seek cabinet approval on Sunday for a proposed exchange of 400 Palestinian and Lebanese prisoners for an Israeli businessman seized by Lebanese guerrilla group Hizbollah three years ago and the bodies of three Israeli soldiers.

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