Haaretz quoted Arafat as saying in an interview earlier this week that he "definitely" understands that Israel must preserve its character as a Jewish state under any future peace deal.

The liberal daily said it was the first time Arafat had made such a comment. But Arafat declined to say how many Palestinian refugees should be allowed to return to what is now Israel in any future peace deal, it said.

Arafat said his Palestinian Authority would control the Gaza Strip after an Israeli pullout, and noted that Palestinian police had been keeping the peace in Bethlehem since Israeli troops withdrew to the outskirts of the West Bank city last year.

Asked if he would not hesitate to fight against Hamas militants in Gaza if necessary, he said: "Even against anyone from Fatah who comes out against the law." Arafat heads Fatah, the largest faction in the Palestine Liberation Organisation.

Hamas is one of the main militant groups responsible for suicide bombings that have killed hundreds of Israelis since the Palestinian uprising began in September 2000. Israeli forces have retaliated by assassinating Hamas leaders.

AFP adds: President Hosni Mubarak held talks with Palestinian prime minister Ahmed Qorei here Friday, a day after a scheduled meeting was called off amid persistent rumours over the Egyptian leader's health.

The meeting held at Mubarak's private residence in the Cairo suburb of Heliopolis lasted 30 minutes, after which neither leader made any comment to reporters, said an AFP correspondent at the scene.

Qorei had been due to leave Egypt late Thursday, but delayed his departure for the meeting with Mubarak, Palestinian sources said.