Talks on transferring further control of the West Bank to the Palestinians have broken down, according to Israeli media reports.

Disagreement reportedly centred on which two towns should next be vacated by Israeli troops, with Palestinian security chief Mohammed Dahlan asking for Ramallah.

Israeli Defence Minister Shaul Mofaz would only agree to Jericho and Qalqilya when they met in Jerusalem on Wednesday night, according to Israeli sources.

Protests at Israeli work on a vast security barrier in the West Bank continued on Wednesday, with UN Secretary General Kofi Annan adding his objections.

Wednesday´s meeting follows recent trips to Washington by both the Palestinian and Israeli prime ministers.

At a White House news conference on Wednesday, President George W Bush insisted his goal of a Palestinian state by 2005 - set out in the peace plan known as the roadmap - was still "realistic".

Ramallah issue

"Ramallah first and then Qalqilya or Nablus," was how a source close to Mr Dahlan explained the Palestinian stance before the talks in comments to the French news agency, AFP.

However, the Israeli daily Haaretz noted in its online edition that the choice of Ramallah is too sensitive for Israel at this stage given its symbolism as the seat of the Palestinian leader, Yasser Arafat, and his prime minister.

Mr Arafat has been effectively confined to the town for more than a year now by the Israeli security forces.

The paper went on to suggest that a compromise might be reached such as Israel agreeing to transferring a third city instead.

The meeting, said to have lasted four hours, was the first official contact between the two sides since the talks in Washington.

It had already been clouded by a warning from Mr Mofaz of a "fresh threat" of possible attacks by Palestinian militants groups.

For his part, Mr Dahlan, attacked Israel´s security barrier plan before going into the talks.

´Racist´ barrier

He said Israeli Prime Minister Ariel Sharon´s insistence on forging ahead with the fence showed Israel was "not thinking seriously about implementing the roadmap".

The fence would, he added, increase hatred between the Palestinian and Israeli sides because it was a "racist separation wall".

Kofi Annan questioned the thinking behind the barrier.

"I know it´s the conventional wisdom that [good] fences make good neighbours, but that is if you build a fence on your own land and you don´t disrupt your neighbour´s life," he told reporters in New York.

The Israeli Government sees the barrier, designed to stretch 370 miles (600 kilometres), as a way of preventing militant attacks.

Palestinians say it is an attempt to grab land and destroy their dreams of statehood.

Palestinian state ´realistic´

President Bush held talks with both sides in what was seen as an attempt to push forward the peace plan known as the roadmap.

The plan has resulted in relative calm after a ceasefire by Palestinian militant groups and a pull-back by Israeli forces from some Palestinian areas, but few people are convinced it can last.

Mr Bush met Ariel Sharon on Tuesday after talks with Palestinian Prime Minister Mahmoud Abbas - also known as Abu Mazen - the previous Friday.

He said on Wednesday that Mr Abbas was a man to be trusted and that Mr Sharon was committed to the creation of a Palestinian state.

But he also warned that both sides - and Arab governments in the region - had much to do to secure a lasting peace and the creation of a viable Palestinian state. (© BBC MMIII 07/31/03)