"I think that an historic breakthrough is possible in our relations with the Palestinians. I want to underline that we are detecting encouraging signs but these things must still be verified," he told a meeting of an Israeli business association in Jerusalem.

"There have been positive developments in the approach of the Palestinian Authority to the struggle against violence and terrorism and in its promotion of the political process," said Sharon.

"I think the breakthrough could lead us to calm and security and perhaps, in the future, to the peace that we want and to which we have a right.

"We are ready to go further, we are ready to make many concessions but we will not make the slightest concession in the field of Israel's security and that of its nationals."

The new Palestinian leader has already secured an agreement from militant groups such as Hamas and Al-Aqsa Martyrs Brigades for a "cooling down" period and is pressing for a formal truce.

He has also deployed security forces in the militants' northern Gaza Strip stronghold and Israeli officials acknowledge a sharp reduction in attacks over the past week.

Sharon held out the possibility of a negotiated implementation of Israel's unilateral plans to withdraw from the Gaza Strip this year and a return to the roadmap peace plan adopted by the international community in mid-2003 but virtually moribund since, despite a 2005 target date for Palestinian statehood.

"If the Palestinians take action to halt terrorism, violence and incitement to hatred, we could make progress with them in the implementation of the roadmap and it would be possible to coordinate with them various activities connected to the disengagement plan," the Israeli premier said.

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