Israel should stop building its West Bank separation barrier (search) if Palestinian militants halt attacks, Israel's president was quoted as saying Thursday, in the most high-profile criticism yet of the contentious project.

Israeli Prime Minister Ariel Sharon (search), meanwhile, faced a new coalition crisis, with a key partner, the secular-rights Shinui Party (search), threatening to quit. If Shinui bolts, Sharon could be forced into early elections, which in turn would delay or halt his plan to withdraw from the Gaza Strip (search) and parts of the West Bank in 2005.

The separation barrier and the Gaza withdrawal are part of Sharon's so-called "unilateral disengagement" from the Palestinians. The barrier — which runs mostly close to Israel, but also dips deeper into the West Bank in some areas — would serve as a temporary frontier until a final peace deal is negotiated.

Sharon put together the plan at a time when Yasser Arafat (search) was still alive. Sharon hoped it would allow Israel to seize the initiative, avoid dealing with Arafat and reduce international pressure on Israel to accept more far-reaching proposals.

Israeli President Moshe Katsav said in excerpts of an interview with the Maariv daily published Thursday that it would be in the interest of Israelis and Palestinians to halt construction of the separation barrier.

"If the Palestinians end terror, Israel must stop building the separation fence," said Katsav who holds a largely ceremonial position, but has some influence on public opinion. Katsav said the construction should be halted if the Palestinians agree to a truce that is observed over an extended period.

Sharon's aides declined comment on Katsav's remarks.

More than 1,000 Israelis have been killed in suicide bombings and shootings in more than four years of fighting. More than 3,300 Palestinians have been killed in the same period, most in clashes with Israeli troops.

Israel says it needs the barrier, one-third of which has already been built, to keep out Palestinian attackers. The Palestinians have denounced it as a land grab, and note that the divider has disrupted thousands of lives. Earlier this year, the world court said in an advisory ruling the barrier must be torn down.

In Israeli politics, Sharon's troubles worsened Thursday, with a threat from Shinui to quit the coalition. Shinui is upset by Sharon's attempts to bring a small religious party, United Torah Judaism, into the government, while snubbing the opposition Labor Party in coalition talks.

Sharon needs to expand his coalition to survive crucial votes on the 2005 state budget in coming weeks. Labor, which supports the Gaza withdrawal plan, is interested in joining, but hawks in Sharon's Likud Party (search) oppose the idea.

Shinui leader Yosef Lapid said Thursday that a Likud-Shinui-Labor coalition would be most effective in pushing forward with the Gaza plan.

If Sharon invites religious parties, at a price of increased funding for religious institutions, Shinui will quit, Lapid told Israel Army Radio. "We've reached the breaking point," he said. "There's no reason for me to stay in a government that is willing to capitulate (to religious parties)."

In Palestinian politics, interim leader Mahmoud Abbas (search) picked up a key endorsement from younger activists in his Fatah movement, reducing the probability of an internal challenge by Marwan Barghouti, a popular Fatah politician and uprising leader jailed by Israel.

Abbas was named earlier this week as Fatah's candidate in Jan. 9 elections to replace Arafat as Palestinian Authority president. Abbas was chosen by Fatah oldtimers who control the organization's institutions. Barghouti, seen as a leader of the movement's young guard, has been weighing a challenge to Abbas.

However, leading members of the younger generation in Fatah have in recent days come out in support of Abbas.

In other developments Thursday:

— Palestinian Prime Minister Ahmed Qureia (search) met with visiting British Foreign Minister Jack Straw, who pledged his support for the Palestinian elections. The European Union is to dispatch some 170 observers, with an advance team to arrive next week, Israeli officials said.

— In the Gaza Strip, one Palestinian was killed and another injured by Israeli tank fire during a military operation in the Rafah refugee camp. Hamas said the dead man was a member and had been on a "holy mission" to target Israeli soldiers.

— Israeli troops forced a Palestinian man to play his violin in order to pass through a roadblock near the West Bank city of Nablus, said an Israeli human rights activist who captured the Nov. 9 incident on video. The army said it launched an investigation, and that the soldiers had acted in an insensitive manner. It was not clear whether the soldiers would be disciplined.