The majority on both sides "want to emerge from what has been a two-and-a-half-year nightmare", Moratinos said, following Sunday's ceasefire announcement by Palestinian radicals.

The Israeli army has since pulled out of the northern Gaza Strip and was to hand the West Bank town of Bethlehem over to Palestinian control on Wednesday.

"The silent majority in the two societies want a way out of the crisis. That's why the leaders have understood they need to embark on this new path, with the help of the international community," said the Spanish diplomat.

"I believe so," he said, when asked to predict if the intifada, the Palestinian uprising underway since September 2000, was now drawing to a close.

"The most important thing at the psychological level is that now Israel, with its withdrawal and transfer of authority in Gaza, will rebuild confidence in the Palestinian Authority to take charge of security control.

"If it proves possible to hand over security to the Palestinian Authority in other towns and Palestinian territories, and that we go back to the situation of September 2000, then I believe we will have got out" of the intifada.

Moratinos, who was Cyprus-based during his seven-year posting, voiced confidence that Israeli Prime Minister Ariel Sharon would work for peace.

Sharon is "convinced that his historic role is to make peace with (Israel's) neighbours and he is ready to make a very painful compromise to achieve this peace", said the EU envoy.

At a farewell meeting in June, "he told me again that he was the Israeli political leader best placed to secure the political backing and with the greatest capacity" to make peace, Moratinos said.

He pointed to several factors behind the ceasefire decision taken by Palestinian hardliners, especially the Iraq war.

"It's true that the world has changed after the war in Iraq. It's true that the Islamist movements must consider their future," he said.

Moratinos, who played a key role in efforts to build an Israeli-Palestinian dialogue before leaving his post on June 30, pointed to fatigue among both the Palestinian and Israeli populations, as well as their economic crises.

"The Palestinians have had enough, the Israelis have had enough. The Israelis are really happy (with the truce), and the same applies for the Palestinian society."

The outgoing envoy acknowledged that the road to a lasting peace between Israel and its Arab neighbours was "still long and difficult" despite the auspicious start on the internationally-backed roadmap peace plan.

The plan, drawn up by the United States, United Nations, European Union and Russia, aims to establish a Palestinian state by 2005.

"We are starting a new phase ... and it would be an error to ... regard as inevitable the idea of an eternal drama between Palestinians and Israelis," said Moratinos.

WAR.WIRE