Israeli newspapers reported Sunday that Israel and the Palestinians had drafted a potential peace plan that would recognize a Palestinian state within two months and work out the final details later. 

Israeli and Palestinian leaders promptly dismissed the reports. But officials, speaking privately, confirmed that Israeli Foreign Minister Shimon Peres and Palestinian Parliament speaker Ahmed Qureia — a duo whose secret talks led to the first Israel-PLO accords in 1993 — were discussing the ideas. 

Yediot Ahronot and Maariv reported that the two, with the knowledge of Palestinian leader Yasser Arafat and Prime Minister Ariel Sharon, tentatively agreed a Palestinian state would be established in two months in areas already under Palestinian Authority control — 42 percent of the West Bank and most of the Gaza Strip. 

The states would then negotiate other issues — expanded borders, Jewish settlements, Jerusalem and Palestinian refugees — over the next year. Any agreement would be implemented within two years. 

Sharon's office said the reports, as they appeared in the papers, were "unfounded fantasy," while the Palestinians said they referred to a unilateral Israeli proposal that fell far short of their oft-stated demands. 

"Peres is holding ongoing contacts with Palestinian officials in order to work out a cease-fire" to 15 months of violence, Peres aide Yoram Dori said Sunday. 

Qureia, when asked about the report, reiterated the Palestinian demand that Israel should withdraw from all of Gaza and the West Bank, land captured in the 1967 Mideast war, and said that any less was "not acceptable." 

Palestinian officials, speaking on condition of anonymity, confirmed that the reported plan was proposed by Peres verbally, and that Quriea had been asked by Arafat to try to improve on the terms. While the Palestinians cannot accept another interim settlement, the officials said, they might be open to a multistage final settlement. 

One way to sidestep the border issue, officials said, would be for Israel to recognize Palestine under the umbrella of Security Council resolutions 242 and 338, which the Palestinians interpret as applying to all of the West Bank and Gaza and Israel does not. 

Israel's former prime minister Ehud Barak proposed a Palestinian state in Gaza and more than 90 percent of the West Bank, including a foothold in Jerusalem. But the Palestinians rejected that offer as insufficient, citing several additional demands, and the offer was removed from the table after Sharon came to power in March. 

Sharon has said he will not negotiate with the Palestinians as long as violence continues. If calm is restored, he says he would be willing to work toward a long-term interim agreement with the Palestinians, though he opposes any major territorial concessions by Israel.