Diplomatic sources in Washington said the panel blamed neither Israelis nor Palestinians directly for igniting the confrontations more than seven months ago.
The report was drawn up by an international commission led by Mitchell and formed as part of an Israeli-Palestinian cease-fire agreement brokered by the United States in October, but never implemented.
U.S. officials handed the draft to both sides in brief meetings in Tel Aviv and the West Bank town of Ramallah. Israel and the Palestinians have until May 15 to respond before final publication.
Palestinian Information Minister Yasser Abed Rabbo said it included "a firm and clear rejection of all settlement activity, including what they (the Israelis) call natural growth."
Israel has said it would not build new settlements, but would permit more construction to accommodate population growth a position that critics of Israel's settlement policy say amounts to continued settlement expansion.
A Palestinian official who saw the document said the commission urged both sides to implement the U.S.-brokered truce and resume peace talks.
Israeli Foreign Minister Shimon Peres voiced optimism that such talks might resume after meeting President Bush in Washington Thursday. But Palestinians were skeptical on Friday.
"I do not know what progress Mr. Peres is talking about," said Palestinian parliamentary speaker Ahmed Korei.
He reiterated that the Palestinians regarded an Egypt-Jordanian peace initiative as the best way toward peace, and that talks must resume from where they left off under the Israeli government ousted in an election in February.
Israeli Prime Minister Ariel Sharon wants alterations made to the Egyptian-Jordanian proposals. He opposes any resumption of peace talks before the violence ends and a demand for a blanket freeze on Jewish settlements in the occupied West Bank and Gaza Strip.
Violence continued Friday. Settlers in the West Bank took over a hill used by Palestinian gunmen in a deadly shooting last week, and the Israeli army ordered them to leave.
Palestinian gunmen battled with Israeli troops in Ramallah and three Palestinian civilians were wounded. In a clash in the Gaza Strip, seven Palestinians were reported wounded, including a 17-year old shot in the head.
In the West Bank town of Qabatiyeh, four alleged members of Hamas were injured in a roadside explosion Friday apparently caused when a bomb they were building detonated.
Palestinians fired two mortars and Israeli tanks responde with shells near the Israeli farming village of Kfar Azza. No injuries were reported.
Israeli Defense Minister Binyamin Ben-Eliezer said the mortar fire was a breach of commitments made by Palestinian officials in security talks with Israeli counterparts and he would review whether future talks should take place.
The current fighting erupted Sept. 28, after Sharon, at the time the opposition leader, visited a Jerusalem shrine revered by Muslims and Jews and said it would remain forever under Israeli sovereignty. Since then, 431 people have been killed on the Palestinian side and 72 on the Israeli side.
The Mitchell commission said Sharon's visit was not the direct cause of the fighting, but was a factor, according to the Palestinian official, who spoke on condition of anonymity.
The panel also asked Palestinians to prevent shooting attacks on Israelis from civilian areas, and said Israeli troops should not target Palestinian civilians in responding to the gunfire, the official said. The commission also urged the Palestinians to resume security coordination with Israel.
A poll published Friday in the Yediot Ahronot daily said 62 percent of Israelis favor a settlement freeze in exchange for a cease-fire, while 36 percent are opposed. The poll had a margin of error of 4.5 percent.
An extreme right-wing Israeli cabinet minister said on Friday the army should invade Palestinian-ruled areas for 48 hours to destroy the security infrastructure to try to end the Palestinian protests. Sharon's office called the remarks "unacceptable."
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