The Haaretz newspaper said the plan was unveiled by Palestinian leader Yasser Arafat during talks last week in the United States.
Palestinians denied the report. Nabil Amr, an adviser to Arafat, said it was "woven by a fertile imagination."
But a U.S. official, speaking on condition of anonymity, said there were some elements of truth to the report.
Under the reported plan, the Palestinians propose that Israel hand over the West Bank to Palestinian rule. Israel, however, would keep large settlement blocs located along the current border between the territory and Israel.
Also under the plan, Israel would recognize in principle the right of millions of Palestinian refugees to return to homes in what is now Israel - without necessarily implementing the return.
The plan would also provide for shared municipal administration of a united Jerusalem, according to the report. Israel insists on sovereignty over the entire city, while the Palestinians have sought to set up their capital in its traditionally Arab eastern sector.
If accurate, the reported plan would represent a shift in the Palestinian position on Jewish settlements in the West Bank, which Israel has occupied since 1967. Palestinians have long sought all settlements' removal in a final peace deal.
Officials in Barak's government have spoken of removing some small, isolated settlements but of keeping several large blocs deep within the West Bank, not just along the border.
On refugees driven from their homes by the 1948 war, the Palestinians have demanded either their return or compensation for lost property.
The report came as both sides expressed doubts they could meet a Feb. 13 deadline for reaching the outline of an agreement on the thorniest issues dividing them, including borders, Palestinian refugees, Jewish settlers and the fate of Jerusalem.
Palestinian negotiator Ahmed Qureia said Tuesday that after 21 meetings on a final peace agreement, nothing had been achieved. "I believe it is because the Israelis are still hesitant to proceed seriously and to empower the delegation," Qureia said.
Lead Israeli negotiator Oded Eran has also said meeting the deadline is unlikely.
Palestinians want intensive U.S. involvement in the peace process, believing that President Clinton's eagerness for a speedy settlement will lead him to pressure Prime Minister Ehud Barak into yielding to some Palestinian demands.
Hoping to spur the peace talks, the Palestinians had proposed a summit between Arafat, Barak and Mr. Clinton in Davos, Switzerland, this weekend. But both Israel and the United States were cool to the idea.
By Dana Budeiri
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