Israel evicted 8,500 settlers from the Gaza Strip and West Bank settlements in 2005 [AFP]

The "compensation evacuation" plan could be a peaceful way to hand land back to Palestinians, Ehud Olmert said at his weekly cabinet meeting on Sunday.

The country's prime minister said the cabinet would discuss the matter next week.

Olmert told his cabinet that it was likely that Israel would have to move West Bank settlers.

In light of Israel's talks with the Palestinians, he said "it would be proper" to think about providing cash incentives for settlers to leave voluntarily.

Israel has continued to expand illegal settlements in the occupied West Bank, despite a freeze on growth being key to peace agreements.

Olmert said voluntary relocation of some of the estimated 260,000 Jewish settlers was part of US-backed final status talks relaunched last year.

"We will not bring the issue to a decision today," Olmert said. "But at a time when serious and continuing diplomatic negotiations are being held, it should be clear to everyone that they will likely at some [point] lead also to the need to make decisions that will entail the relocation of residents from the places in which they live.

"I think that it is good to begin thinking about these issues and to see how we can prepare for them properly."

Israel evicted 8,500 settlers from the Gaza Strip and four small West Bank settlements in 2005. Many refused to plan for or co-operate with the operation.

Symbolic step

Under internatiionl law, settlers living west of the separation barrier are illegally living on occupied Palestinian land.

Under the proposed bill, settlers willing to leave territory to be transferred to the Palestinians would receive payment from the government.

The bill is aimed at minimising friction and paving the way for a large pullback from the West Bank, which the Palestinians claim as part of a future independent state.

Proponents of the package say that up to half of the 70,000 residents of settlements expected to be evacuated would leave if they had the financial means.

Israel and the Palestinians have been holding formal US-backed peace talks since November 2007, aimed at resolving their decades-old conflict by the time George Bush, US president, leaves office in January 2009.

Mahmoud Abbas, the Palestinian president, who has been meeting Olmert on a fortnightly basis since the talks were relaunched, has repeatedly said the settlements are the greatest obstacle to reaching a deal.

The Jewish settlements in the occupied West Bank, including east Jerusalem, are illegal under international law.

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