HIGHLIGHTS: Meeting Still to be Confirmed by Israel||PLO Former Treasurer Accuses Arafat of Corruption||Palestinian Peace Moves Blocked by Internal Friction||Occupation Army Stepping up Demolition Policy||Sharon's Popularity Plummeting||Israelis Having Second Thoughts About Wisdom of Barghouti Trial|| STORY: Israeli Defence Minister Binyamin Ben Eliezer will meet with Palestinian interior minister Abdel Razaq al-Yahya, a senior Palestinian official told AFP.

"Israel will contact us today (Sunday) to confirm whether the meeting will be held tonight or tomorrow," said the official, who asked not to be named.

The two ministers, who had been scheduled to meet for a second time last Thursday, will discuss plans for a phased withdrawal from re-occupied Palestinian areas where calm has prevailed and where the Palestinian security forces can guarantee a clampdown on anti-Israeli attacks.

The partial pullback is expected to start in the Gaza Strip, and possibly in the southern West Bank towns of Bethlehem and Hebron.

Ben Eliezer has called the proposal a "Gaza First" plan, and first presented it to Yahya in Jerusalem on August 5.

But amid Palestinian fears that Israel could try to chalk up credit for a Gaza pullback while maintaining its stranglehold on the re-occupied West Bank, Israeli officials said it could also apply to Bethlehem and even Hebron.

Under the scheme, Palestinian security forces would take control of the areas vacated by the withdrawing Israeli forces, who would move back to positions held before the Palestinian uprising, or intifada, started in September 2000.

FORMER PLO TREASURER ACCUSES ARAFAT OF CORRUPTION

The former treasurer of the Palestine Liberation Organisation (PLO) Jaweed al-Ghussein has accused Palestinian leader Yasser Arafat of massive corruption in remarks published in the Israeli press.

"I discovered how he took money given to the Palestinian people by donor countries and put it in his own account," Ghussein, 71, told the best-selling Israeli daily Yediot Aharanot.

Yediot said Ghussein, interviewed in London where he now lives, personally deposited half a billion dollars in secret bank accounts for the Palestinian leader.

The daily said Ghussein had transferred between 7.5 and 8.0 million dollars each month from Palestinian public funds to Arafat's personal account.

"There was never any clear demarcation between the tasks of the heads of PLO and the Palestinian Authority, so questions about the responsibility for good management went unanswered," he was quoted as saying.

Arafat is the leader of both organisations.

Ghussein, himself accused by the Palestinian Authority of embezzlement, fled to London via Israel, a Palestinian security source said Friday.

Ghussein had embezzled millions of dollars during his time as PLO finance chief, an annonomus Palestinian source said.

While living in the United Arab Emirates, he had been arrested in Abu Dhabi in April 2001 and handed over to the Palestinian Authority.

The family of Ghussein, who always insisted he was innocent, accused the Palestinian Authority several times of having kidnapped him.

Israel's deputy foreign minister, Michael Melchior, admitted Sunday that Israel had helped Ghussein find refuge in London.

Yediot said that Ghussein "knew too much about Arafat and his financial dealings."

Another Israeli daily, Haaretz, said that the Palestinian Authority accused Ghussein of never repaying a loan of 6.5 million dollars granted him in 1991.

Ghussein argued it was an "unsuccessful investment" rather than a loan. However, a court in London, where the case was handled, ordered him to reimburse the sum.

The financier said he was unable to and declared bankruptcy.

PEACE MOVES BLOCKED BY INTERNAL FRICTION

With the latest Resistance attack inside Israel dating back two weeks, Palestinian secular and Islamic factions were still at odds over whether to quit kamikaze operations and declare a territorially limited truce.

Palestinians officials involved in the talks over a united leadership document remained upbeat about the chances of reaching an agreement.

But many commentators argued Hamas was not ready to give up on its old demands while Yasser Arafat's Fatah would not dare antagonise the powerful Resistance group.

"In the Gaza Strip, Hamas has accumulated power and the greater part of it is opposed to a ceasefire.

"It is doubtful that the supporters of a ceasefire in the Fatah are prepared for such a conflict," said Zeev Schiff, a military analyst with the Haaretz daily.

In exchange for a partial truce, the Palestinians sought a phased Israeli withdrawal from areas reoccupied since the beginning of the 23-month-old intifada, or uprising, that has claimed more than 2,400 lives.

OCCUPATION ARMY STEPS UP DEMOLITION POLICY

And as the reoccupation of the West Bank entered its second month, the Israeli occupation army was piling more pressure on the Palestinians with a number of controversial methods.

The Israeli state was pushing for the deportation to the Gaza Strip of three Palestinian bombers' kin, while troops continued their bid to deter future attacks by rounding up more relatives of wanted activists.

The occupation army stepped up its policy of house demolitions, drawing wide condemnation from rights groups, who also accused troops of using a Palestinian civilian as a human shield during an operation to assassinate a Resistance leader.

SHARON'S POPULARITY PLUMMETING

But Prime Minister Ariel Sharon was finding it increasingly difficult to manage the consequences on his country's ailing economy of the ever-rising cost of the war against the Palestinians.

His popularity plummeted to a new low since his February 2001 landslide election victory, as various economic indicators provided new evidence of a deepening crisis.

A report by the Bank of Israel even singled out the government's indecisive financial policies as the greatest factor of instability for the Jewish state's economy, which has drifted away inexorably from its pre-intifada record growth levels.

Against a backdrop of growing discontent over rising inflation and unemployment, and widespread opposition to government plans for swingeing budget cuts, there was increasing talk of snap elections as early as the beginning of next year.

But with no economic recovery in sight, Sharon was unlikely to improve his economic performance in the coming months and anticipated elections would remain a gamble for the hawkish former general.

His old Likud rival Benjamin Netanyahu looked set to pounce on the opportunity, with his internal campaign against Sharon gradually reaching full steam.

Israel was also wondering this week whether the much-hyped indictment of jailed "intifada hero" and Arafat lieutenant Marwan Barghuti was not a mistake. Palestinians have vowed to use the September trial as a platform to attack the occupation and win public sympathy.

PHOTO CAPTION

Smoke rises after Israeli tanks shelled the old city of the West Bank city of Nablus August 16, 2002. Two Palestinian teenagers were wounded in a stone-throwing clash with Israeli troops in the historic Old City, after which a gunfight erupted between Palestinian militants and soldiers, city residents said. REUTERS/Abed Omar Qusini
- Aug 15 10:41 PM ET