Israeli Prime Minister Ariel Sharon has held his first direct talks with senior Palestinian officials in nearly year. Sources on both sides say Mr. Sharon proposed a gradual cease-fire to end more than two years of violence.

Mr. Sharon is working on new proposals with the Palestinians to restore calm and pave the way for a full resumption of peace talks. He outlined his plan on Wednesday during a secret meeting with the Speaker of the Palestinian parliament, Ahmed Qureia.

The two men discussed the possibility of Israel and the Palestinians resuming security co-operation in various parts of the West Bank and Gaza Strip.

Under the plan, Israeli troops would gradually withdraw from these areas and the Palestinian Authority would resume responsibility for law and order.

Israel would also allow a free flow of goods into the areas and permit more Palestinians to work inside the Jewish State.

Israeli media reported that the U.S. Ambassador to Israel, Daniel Kurtzer, attended the meeting at Mr. Sharon's ranch in the southern Negev desert. During the discussions, Mr. Sharon reportedly said that while he is willing to meet with some Palestinian officials, there is no possibility of diplomatic talks resuming while Palestinian leader Yasser Arafat remains in power.

Since first being elected Prime Minister two years ago, after the current fighting started, Mr. Sharon has consistently refused to meet Mr. Arafat. He has accused Mr. Arafat of being behind terrorist attacks against Israelis and has called for him to be pushed aside and replaced with an alternative Palestinian leadership.

The reports of the secret talks come as Mr. Sharon continues efforts to put together a stable coalition government with various political factions.

Mr. Sharon was given a second term in office, following the January 28 national elections, which gave his Likud party the most seats but left it short of an overall majority.