Israel has confiscated thousands of acres of Palestinian farmland to build a segment of its contentious separation barrier near the Jewish settlement of Ariel deep in the West Bank, Palestinian officials said Monday.

The army, meanwhile, said it has begun removing 40 obstacles to Palestinian traffic in the West Bank, including earth mounds. The removal is possible in areas where the separation barrier has been largely completed, military officials said.

Since the outbreak of Israeli-Palestinian fighting in September 2000, a network of manned checkpoints and obstacles, such as gates and ramparts, has covered the West Bank. Israel said the barriers are necessary to keep out Palestinian suicide bombers and militants. Palestinians say the travel restrictions, which have devastated the Palestinian economy, amount to collective punishment.

An army official, who spoke on condition of anonymity, said the obstacles are being removed to ease Palestinians' travel. However, Palestinian towns remain encircled by checkpoints, severely congesting traffic and disrupting daily life.

Construction of the separation barrier began last year. The system of trenches, fences, walls and razor wire snakes through the West Bank, at times dipping deep into the territory claimed by the Palestinians for their state.

The most contentious segment involves Ariel, a settlement with 18,000 residents in the heart of the West Bank.

The United States opposes including Ariel on the "Israeli" side of the barrier, a move that would deprive the Palestinians of large tracts of West Bank land.

A U.S. official, who spoke on condition of anonymity, said Monday that the United States is in ongoing talks with Israel on how to solve the problem.

In about six months, Israeli and U.S. officials will discuss whether Ariel should be hooked up to the main security barrier or be surrounded, "like a fenced-in island," said Asaf Shariv, an adviser to Israeli Prime Minister Ariel Sharon (search). U.S. officials apparently don't oppose the second option.

Construction of the partial Ariel segment began last week. Residents of the nearby Palestinian village of Azawiya were informed that 4,500 acres of land were being confiscated for a two-mile stretch of barrier, said Annan Elashkar, a Palestinian liaison officer with Israel.

Azawiya resident Khader Abdel Raouf, 65, said his 32 acres of olive groves were seized.

Abdel Raouf said his family of 15 lives off the olive oil produced by the trees. "I have been planting and harvesting these olives since I was a small boy," Abdel Raouf said in tears. "This land belongs to me and I belong to it."

Sharon is eager to complete most of the barrier in the next year to appease hard-line Cabinet members who only reluctantly support his plan to withdraw from the Gaza Strip and four West Bank settlements.

Israel says it needs the barrier to keep out Palestinian militants who have killed hundreds of Israelis since 2000. Palestinians say the divider amounts to a land grab. Thousand of acres of West Bank land have already been expropriated, and the barrier isolates some Palestinian towns and villages.

Azawiyah village has been ordered to halt construction of a new school just 20 yards from the barrier, residents said. Once the barrier is complete, the village will not be able to expand, they said.

Meanwhile, Palestinian leader Yasser Arafat is considering bringing militant groups into Palestinian security forces as part of a reform program, said Foreign Minister Nabil Shaath.

Arafat has offered members of the Al Aqsa Martyrs' Brigades (search), a group with ties to his Fatah movement, to join the official forces, while the Islamic militant Hamas (search) has "asked for a role within the security institutions," Shaath said.

Security reform "requires that there not be any militias working outside the framework of the security forces. Any attempt to reform these security forces will have to include all of the Palestinian factions," Shaath said.

Egypt has demanded Arafat restructure his security forces, merging 12 branches into three, in exchange for training and assistance in taking control of the Gaza Strip following an Israeli withdrawal.