Israel will hand over some Jewish settlements in the West Bank for peace, but the Palestinians must give up on their demand for refugees to be allowed to return to their former homes in Israel, Prime Minister Ariel Sharon said in an interview published Sunday.

In a broad interview with the Israeli newspaper Haaretz, Sharon said he believes the U.S.-led war on Iraq has shaken up the Middle East and may open the door to new opportunities for negotiations.

A hardliner who played a key role in building Jewish settlements in the West Bank and Gaza Strip, Sharon outlined his reservations with the so-called U.S.-backed "road map" to Palestinian statehood.

An Israeli delegation headed by Dov Weisglass, director-general of Sharon's office, headed to the United States Saturday to present 15 Israeli reservations with the plan.

The plan envisions Palestinian statehood by 2005 and is backed by the Quartet of Middle East mediators -- the United States, the European Union, the United Nations and Russia.

The U.S.-led war on Iraq "generated a shock through the Middle East and it brings with it a prospect of great changes," Sharon told Haaretz.

However, whether peace is reached depends on the Palestinians, he said, adding they must first change their leadership and fight terrorism. Viewed by Israel as a moderate, Mahmoud Abbas, the Palestinian prime minister-designate, could be the key to a possible peace deal, he said.

Palestinian Cabinet Minister Saeb Erekat said Israel's attempt to change the road map was meant to "sabotage" the project. "It's another way for the Israeli government to say it is rejecting the road map," he said.

Sharon said Israel's main concerns with the road map are security-related, but he gave no details, saying only the differences were in "wording" not in opinion.

In addition, Israel wants progress in the plan to be conditional on implementation -- when one step is completed the sides move on to the next phase, Sharon said. The Palestinians want the sides to adhere to a strict timetable.

The third key demand, Sharon said, is the right of return for refugees. "This definitely poses a problem," he added.

An Israeli government official who spoke on condition of anonymity, clarified that Israel wants the Palestinians to give up the right of return in a deal that would grant them a state with provisional borders, one of the steps toward permanent statehood outlined in the road map.

Palestinians demand refugees be allowed to return to homes that they fled during the 1948 Middle East war. Those homes are in what is now Israel.

Israel -- which views the right of return as a threat to its existence as a Jewish state -- says the hundreds of thousands of refugees, who are spread throughout the world and in camps in the West Bank and Gaza, should only be allowed to return to the new Palestinian state.

The right of return was one of the main reasons peace talks collapsed in July 2000. Two months later, fighting erupted. Since then, 2,262 people have been killed on the Palestinian side and 755 on the Israeli side.

Israel and the United States have demanded the Palestinians reform their government and appoint a prime minister. Abbas, also known as Abu Mazen, was recently chosen by the Palestinian parliament to fill the role, but his appointment has been delayed by difficulties forming a Cabinet and differences of opinion with Yasser Arafat.

Sharon held out hope that Abbas would take steps to combat terrorism and violence. "Abu Mazen understands that it is impossible to vanquish Israel by means of terrorism," he said.

Sharon repeated in the interview a pledge to make "painful concessions" for peace. Going a little further than usual, he mentioned by name two Jewish settlements, Shiloh and Beit El, West Bank areas that hold biblical and historical significance for Jews.

"I know that we will have to part with some of these places. There will be a parting from places that are connected to the whole course of our history. As a Jew this agonizes me. But I have decided to make every effort to reach a settlement," Sharon said.

Sharon's government includes several extreme-right parties -- including some that don't recognize the Palestinian right to statehood and call for a "transfer" of Palestinians from the West Bank and Gaza Strip to Jordan.

If Sharon reaches a deal that would require Israel to dismantle settlements in the West Bank and Gaza Strip, these parties would bolt his government, leaving him with a minority in the 120-seat parliament. But the opposition Labor Party has said it will support a peace deal if Sharon presents it to parliament.

"Eventually there will be a Palestinian state," Sharon said, repeating a statement that contradicts his own Likud party platform.

"I do not think we have to rule over another people and run their lives. I do not think that we have the strength for that," Sharon said, adding that Israel's recent reoccupation of Palestinian towns and cities in the West Bank is temporary. "It is not a situation that can persist."