Acting Prime Minister Ehud Olmert said Tuesday the Cabinet would decide next week whether to allow Palestinians to vote in Jerusalem during Palestinian parliamentary elections.

If the Cabinet approves the plan, it would resolve a dispute that threatened to derail the Jan. 25 election.

Olmert told Secretary of State Condoleezza Rice in a phone conversation that the Cabinet would vote on the matter at its weekly meeting Sunday, according to a statement from Olmert's office. Rice had called Olmert for an update on the condition of Prime Minister Ariel Sharon, who was hospitalized after a massive stroke.

Israel had threatened to prevent the voting in Jerusalem, which had been allowed in previous elections, because of the presence on the ballot of Hamas, a militant group pledged to the destruction of Israel. A Cabinet decision to allow the voting to go forward would be contingent on Hamas not participating, Olmert's statement said.

Israeli officials gave conflicting accounts as to whether the proposal would pass.

Defense Minister Shaul Mofaz said Tuesday that Israel would allow Jerusalem voting along the same lines as previous Palestinian elections, when it permitted some residents to cast absentee ballots at post offices. The remainder of voters cast ballots in West Bank suburbs.

"Israel's policy regarding elections in east Jerusalem will stay like it was," Mofaz told reporters while on a tour near Jerusalem. The arrangements were reached under interim peace agreements in the mid-1990s.

But Israeli Foreign Minister Silvan Shalom said there would be no voting in Jerusalem.

"Israel is of the opinion — and it was an opinion widespread when Prime Minister Sharon was still functioning as a decision-maker — that under the present circumstances, residents of east Jerusalem are not to be allowed to vote in Jerusalem itself but only in the adjoining (West Bank) villages," he said.

Palestinian negotiator Saeb Erekat said he had not heard anything official from the Israelis. "If this is the case, I welcome this position of the Israeli government," he said.

The status of Jerusalem is one of the most sensitive issues in the Israeli-Palestinian conflict. Israel claims all of Jerusalem as its capital. The Palestinians claim the eastern sector of the city as capital of a future state.

Israel had been threatening to prevent voting in Jerusalem because the Islamic group Hamas, which is committed to Israel's destruction, is running.

Palestinian leader Mahmoud Abbas had said the election would be canceled if Palestinians in east Jerusalem weren't allowed to vote, but said in a televised address Monday that he had received assurances from the U.S. that Jerusalem voting would be allowed.

Olmert's announcement came a day before a team of U.S. envoys were scheduled to arrive to help resolve the dispute.

Israeli police also reversed a ban on allowing Palestinian candidates to campaign in Jerusalem.

On Tuesday, police published conditions for the campaigning, saying that members of terror groups, such as Hamas or Islamic Jihad, were still banned. Other candidates could hold meetings in private homes, but assemblies in public buildings would require a police permit.

Rallies in open spaces were banned and election posters were to be displayed only on notice boards put up for the purpose by the municipality. Posters on vehicles were also banned, but small bumper stickers were permitted, the statement said.