JERUSALEM (Reuters) - Israeli leaders approved on Thursday a troop pullback from West Bank cities and a plan to release Palestinian prisoners, measures crucial to the success of an Israeli summit with the Palestinians in Egypt next week.

Israel and the Palestinians said they hoped to declare a formal halt to violence at the talks in the Red Sea resort of Sharm el-Sheikh next Tuesday that will mark a dramatic return to peacemaking after more than four years of bloodshed.

As part of a confidence-building package to be presented at the summit, Israel will carry out a phased military pullback from positions around five Palestinian cities and free hundreds of prisoners, said a cabinet minister who declined to be named.

Troops will move away from the West Bank city of Jericho first and then withdraw from areas around Tulkarm, Bethlehem, Qalqilya and Ramallah, the seat of the Palestinian government.

Prime Minister Ariel Sharon and top cabinet ministers approved the steps at a meeting in Tel Aviv that was to be followed by talks later in the day between senior Israeli and Palestinian officials.

Palestinians have sought a wider prisoner release, an issue key to attempts by new President Mahmoud Abbas to consolidate power following the death of Yasser Arafat. The cabinet minister said Palestinians jailed for deadly attacks would not go free.

In addition, a joint Israeli-Palestinian committee will be formed to finalize a roster of Palestinian militants who will be struck off Israel´s most-wanted list in return for a halt of attacks against Israelis.

Israel will also open all of the Gaza Strip border crossings it closed in response to strikes by militants.

BUSH PLEDGES AID TO PALESTINIANS

The new summit was called before President Bush pledged $350 million in aid to the Palestinians to bolster security and economic development and said the goal of Palestinian statehood "is within reach."

"I hope there will be an official declaration of an armistice, on the cessation of all acts of violence," Vice Premier Shimon Peres said on Army Radio.

Abbas, commenting on a formal announcement, told reporters: "We hope to God this will happen."

The talks, hosted by Egyptian President Hosni Mubarak and attended by Sharon, Abbas and Jordan´s King Abdullah, would aim to solidify a shaky de facto cease-fire by reviving a U.S.-backed peace "road map."

Sharon and Abbas last met in June 2003 at a summit in Jordan that approved the plan, since stalled by violence, charting mutual steps toward creation of a Palestinian state alongside Israel. Abbas was Arafat´s prime minister at the time.

Bush´s State of the Union aid pledge -- bigger than expected -- was meant to demonstrate U.S. support for Abbas, elected last month to replace the late Arafat, whom the U.S. leader shunned as an obstacle to peace.

"The beginnings of reform and democracy in the Palestinian territories are showing the power of freedom to break old patterns of violence and failure," Bush said in the speech.

New Secretary of State Condoleezza Rice was due to meet Sharon and Abbas separately in the region next week.

In exchange for Israeli confidence-boosting moves, Israel expects both Egypt and Jordan to restore ambassadors to Tel Aviv who had been recalled when the Palestinian uprising flared.

While Israel has curtailed military action in response to a sharp drop in attacks by gunmen over the past two weeks, it has urged Abbas to detain militants and dismantle "terrorist capabilities and infrastructure" as the road map states.

Abbas, citing a concern not to stir civil unrest, has said he wants to co-opt rather than crush militants, and Palestinian officials have demanded greater Israeli compliance with road map obligations including a halt to West Bank settlement expansion.

Khaled Meshaal, the exiled leader of Hamas, said Israel had adjusted its position on a truce but not enough to satisfy the militant group. (© Reuters 2005 02/03/05)