JERUSALEM – Senior Palestinian Arab terrorists imprisoned in Israeli jails hammered out a proposal softening Hamas’s rejection of Israel’s right to exist in what could be a first step toward moderation for the Islamic terrorist group, Palestinian Arab officials said yesterday.

The proposal, accepting a Palestinian Arab state alongside Israel, was signed by a well-known Hamas terrorist, but it’s far from clear if it will be accepted by the group’s hard-line leaders abroad, who have resisted international demands to recognize Israel and renounce violence. Hamas officials in Damascus had no immediate comment.

Since Hamas formed a Cabinet in March, the group’s leaders have been searching for a way to end their government’s international isolation. Hamas leaders in Gaza and the West Bank have hinted they might abandon the group’s call for the destruction of Israel, but the Syria-based leader of Hamas, Khaled Mashaal, has rejected any suggestion of moderation.

The draft agreement was negotiated over the past month by terrorists held in Hadarim Prison next to the seaside Israeli city of Netanya, including a leader of Mr. Abbas’s Fatah Party, Marwan Barghouti, and the top Hamas terrorist held by Israel, Abdel Khaled Natche.

The proposal calls for the establishment of a Palestinian Arab state “in all the lands occupied in 1967,” a reference to the West Bank, Gaza Strip and east Jerusalem. The document does not include explicit recognition of Israel, but even the implied recognition would mark a major breakthrough for Hamas.

A Gaza-based Hamas spokesman, Mushir al-Masri, praised the prisoners’ effort but refused to commit to the agreement. “It could be a good base for a national platform and a national dialogue, but it still needs more discussion,” he said yesterday.

Mr. Abbas said he backs the draft, which also authorizes him to lead peace talks with Israel based on what is referred to as “Arab legitimacy,” an ap parent reference to an Arab peace initiative that calls for a two-state solution. “This document is very important,” Mr. Abbas said. “It includes a deep and realistic political vision that to a very large extent represents my point of view … and thus I adopt it.”

Prime Minister Olmert has said he is ready to withdraw from much of the West Bank to make way for an independent Palestinian Arab state, but he plans to keep large blocs of West Bank settlements and holy sites in east Jerusalem.

An Israeli foreign ministry spokesman, Mark Regev, declined to comment on the accord, calling it an internal Palestinian Arab matter.

The draft agreement does not renounce violence, saying Palestinian Arabs should “focus their resistance on the lands occupied in 1967.”

The prison negotiations were aimed at ending tension between Hamas and Fatah, who are vying for control of the government. The rivalry erupted into violence in Gaza this week, killing three people and wounding more than a dozen.

Hamas and Fatah are to hold crucial talks in two weeks to try to settle their differences, and the draft, which calls for Fatah to join the Hamas government, could be part of the negotiations.

Also yesterday, Israel’s dovish new defense minister, Amir Peretz, met with his top generals and told them he was considering easing restrictions on exports from Gaza to Israel.

Israel has kept the main Karni cargo crossing closed for much of the year. The Israeli military cites security concerns, but Palestinian Arabs say they are being penalized for electing Hamas.

Outside U.N. headquarters in Gaza City, about 40 children set up a tent to protest what they called an economic siege. Several stripped to their underwear and stood on American and Israeli flags to dramatize their economic plight.

“The world should act to end this collective punishment,” an organizer, Raouf Barbakh, said.