The Bush administration has notified Israel it is opposed to the expulsion of Yasser Arafat (search) even though "he is part of the problem and not part of the solution" in the tense standoff with the Palestinians.

"We think that it would not be helpful to expel him because it would just give him another stage to play on," spokesman Richard Boucher (search) said as Prime Minister Ariel Sharon's government threatened to oust Arafat from the West Bank.

"The Israeli government is very clear on what our views are on these things and I think understands clearly our position," Boucher said.

While the administration tried to restrain Israel, Secretary of State Colin Powell (search) said there must be a freeze on Jewish settlements and the removal of unauthorized outposts on the West Bank.

In an interview with Al-Jazeera (search), the satellite network that blankets the Arab world, Powell also said "there are problems" with the security fence Israel is constructing to separate itself from Palestinian-held territories.

Still, Powell said in an interview Wednesday that was released Thursday, "it is very difficult to get these obligations met or dealt with in the presence of continuing acts of terror on the part of Hamas and other organizations."

Powell and Boucher repeatedly have spoken out against expulsion of the president of the Palestinian Authority, emphasizing that the effect could be to build him up.

Israel apparently is not heeding the advice. After Sharon met with his security Cabinet on Thursday the Israeli government issued a statement that called Arafat a "complete obstacle" to peace and said he would be removed.

Immediate action was put off, however, and Arafat emerged from his office building in Ramallah flashing a victory sign to hundreds of supporters.

Meanwhile, a former U.S. ambassador to Israel proposed that Arafat be expelled but only if such a move is coupled with a political overture to the Palestinians that includes abandoning some Jewish settlements on the West Bank.

"It's time Arafat move on," Martin Indyk said at the Brookings Institution (search), where he heads a Middle East policy center. "But it is clear he is not going to go quietly."

Nor, he said, is the Israeli government prepared to expel the Palestinian leader, who is confined to his battered West Bank headquarters and shunned by the Bush administration as entangled in terrorism and corruption.

Indyk said Arafat's expulsion should not be put forward as an Israeli response to terrorism but as part of a larger plan to break the stalemate in peacemaking with the Palestinians.

Israel, for instance, should offer to withdraw from Jewish settlements and thereby assure the Palestinians that the territory they would control would be continuous, said Indyk, ambassador and assistant secretary of state in the Clinton administration.

Speaking at the same forum, former Israeli Prime Minister Shimon Peres (search) faulted the Israeli government as not having "kept its promise" on halting settlement activity.

Peres, temporary head of the opposition Labor party, said Israel should not act out of anger, even if it was justified. "While we have to fight terror we must be careful not to escalate the situation," he said.

Peres urged Sharon's government to deal with Ahmed Qureia (search), the new Palestinian prime minister. Qureia "understands terror and peace do not work together, and he prefers peace," Peres said.

At the same time, Peres, who shared the 1994 Nobel Peace Prize with Arafat and then Israeli-Prime Minister Yitzhak Rabin (search), said he was against expulsion even though Arafat was a problem.

"Occasionally you have to live with problems without solving them," Peres said.

He criticized the Israeli government for its treatment of the 74-year-old Arafat, saying it had "tortured him mentally."

Peres said Israel had to fight terrorism but "without stopping the political process" and he proposed Israel revive peacemaking by withdrawing from Gaza.

At the White House, press secretary Scott McClellan said: "The focus needs to be on creating the conditions necessary for peace to prevail. And all parties need to keep in mind the responsibilities to get to that point."