Israeli opposition leader Shimon Peres has agreed to work with right-wing Prime Minister Ariel Sharon to push ahead a Gaza pullout plan and pursue contacts on a unity government, political sources say.

Weakened by the departure of former far-right allies furious at the withdrawal project, Sharon is exploring the option of forming a coalition with Peres and his centre-left Labour party to remove troops and Jewish settlers from occupied Gaza.

Discussions between Israel’s oldest political warhorses, friends for decades despite their differences, were only at a very early stage, the sources said. Negotiations on posts in a coalition government had not begun yet.

“They agreed on supporting the Gaza plan”, said one senior political source. “Peres said he still has to get his party’s mandate if Labour is to join a government.”

Peres – who has long proposed abandoning Gaza – emerged smiling from a breakfast meeting with Sharon but made no comment.

Sharon’s initiative for unilateral “disengagement” from conflict with the Palestinians means abandoning all 21 Gaza settlements and four of 120 in the West Bank by late next year. Both territories were captured in the 1967 Middle East war.

Israel’s cabinet approved the withdrawal project after Sharon fired two far-right ministers, but that cost the former general the majority in parliament he will need next year if he is to push through the phases of the US-backed plan.

Most Israelis would like to part with Gaza, where 7,500 settlers live in heavily guarded enclaves among 1.3 million Palestinians.

As the price for joining a coalition, Peres, an 80-year-old Nobel peace laureate, has demanded a faster pullout and also wants talks with the Palestinians – who fear they will get Gaza only at the cost of a stronger Israeli grip on the West Bank.

But insiders said another obstacle was that Peres appeared to want to return to the foreign ministry in a new coalition, but sacking Foreign Minister Silvan Shalom could strengthen opposition to the 76-year-old Sharon within his Likud party.

<B>“Reward Palestinian terror” </B>

Anger at the possibility that Labour could join the government is already bubbling vigorously in Likud, many of whose members are against giving up any territory and say Sharon’s pullout plan would “reward Palestinian terror”. “We will oppose by all means any effort to add this cancer to the Likud,” said party strongman Uzi Cohen on the prospect of an alliance with Labour.

Labour and Likud formed a shaky pact in Sharon’s first term from 2001-2003, but it fell apart in a row over funding for Jewish settlements. Violence has surged in Gaza since Sharon set out his withdrawal plan early this year.

Tanks and armoured bulldozers pushed into the Gaza town of Khan Younis early yesterday to demolish what the army called gunposts and firing positions for rockets and mortars.

Palestinian medics said a 70-year-old man was killed when his home was bulldozed, but the army said it had removed only flimsy shacks and uncompleted structures – not inhabited buildings.

<B>Matthew Tostevin</B>