Parties on both ends of an extraordinary deal that could potentially bring peace to the Middle East  - the gift of a huge tract of land adjacent to Gaza for a Palestinian homeland - now say the offer was never on the table.

Palestinian Authority President Mahmoud Abbas was quoted by the PA-run Ma'an news service as saying Egyptian President Abdel Fattah el-Sisi offered up a 617-square-mile chunk of the Sinai Peninsula for a Palestinian homeland. The massive parcel would be five times the size of Gaza, where nearly 2 million Palestinians are crowded into a 139-square-mile strip of land. 

 “[The Egyptians] are prepared to receive all the refugees, [saying] ‘let’s end the refugee story,’" the news agency quoted Abbas as telling members of the Palestinian Authority Fatah party that governs the West Bank. "A senior leader in Egypt said, ‘A refuge must be found for the Palestinians and we have all this open land.’ This was said to me personally. But it’s illogical for the problem to be solved at Egypt’s expense. We won’t have it.”

The news service quickly scrubbed Abbas' reference to a land deal, the rejection of which could undermine perceptions of Abbas' commitment to peace. But the newspaper Israel Today, citing sources privy to the details of the proposal, said Abbas rejected it despite "substantial Egyptian pressure" to accept it.

After the supposed proposal was highlighted on Israel Army Radio on Monday, officials rushed to deny it ever happened.

“The Egyptian and Palestinian leaderships have unified their stance on the establishment of a Palestinian state on the lands occupied in 1967 and Jerusalem as its capital; President Mahmoud Abbas has updated President Sisi on the future vision to reach this goal,” said Tayeb Abdel Rehim, of the Palestinian presidential office.

But a number of Israeli politicians, including the former Shin Bet intelligence service head Yaakov Peri of the centrist Yesh Atid party, now minister of science and Technology, reacted with cautious optimism to the idea.

“There are elements that are worth discussing despite Abbas's refusal,” Peri said. “This could solve problems that weren't given a response in talks between Israel and the Palestinians so far.”

One reason for the idea's appeal is that the huge and lawless peninsula has so much land available. If Egypt is indeed willing to dedicate it to Palestinian settlements, it could act almost as a safety valve for the overpopulated Gaza, say observers.

"The solution to the Palestinian problem must be regional and cannot fall on Israel's shoulders alone," Ayelet Sheked of the right-wing Jewish Home party opined.

But another stumbling block for Palestinians is a proviso reportedly contained in the offer: No Hamas governance. Egyptians reportedly insist the Sinai land be demilitarized and annexed to Gaza on the condition that Gaza will be governed by the Palestinian Authority, and not the Hamas regime that recent fought a bloody 52-day war with Israel.

“Egypt’s offer was, of course, not merely aimed at finally doing the right thing by the refugees” Jonathan Tobin of Commentary magazine noted. “The Hamas stronghold in Gaza is a threat to the Egyptian military government in Cairo because of its alliance with the Muslim Brotherhood.

“Resettling the refugees could be the first step in neutralizing Hamas as well as in reforming the political culture of the Palestinians to the point where it might be possible for them to start thinking about making peace instead of sticking to demands for a return to Israel,” Tobin added.

Adding to the mixed messages, a report in Monday’s Cairo Post indicated that as recently as Aug. 23 Abbas, referring to the notion of a land swap involving Sinai, had told Egyptian anchorman Ahmed Moussa that the PA had rejected a similar proposal when floated by Israel in 2010.

“Gaza in its current size is not viable," the report stated. "It does not have the minimal territory to maintain a stable economy."

Paul Alster is an Israel-based journalist. Follow him on Twitter @paul_alster and visit his website: www.paulalster.com