The gap is narrowing between Israeli and Palestinian leaders over the amount of territory Israel would hand over to a Palestinian state, people close to the talks said a month ahead of a US-sponsored conference.

But Israeli, Palestinian and Western officials say sketching the boundaries of a future state may be the easy part.
The real progress, they say, depends on narrowing differences over the fate of Jerusalem and Palestinian refugees, on which little progress can be discerned so far after closed-door meetings. Even vague talk of dividing the city has stirred opposition within the Israeli cabinet.

Israeli officials link easing their stance on Jerusalem to the Palestinians being prepared to soften their demand that refugees and their descendants be allowed to settle in Israel.

“In this tortuous process, everything is difficult. But Jerusalem and refugees are the most difficult issues,” said Shlomo Ben-Ami, who was foreign minister when the last talks on the “final status” of a peace deal collapsed in 2001.