Israel's vice premier presented a proposal yesterday to pay thousands of Jewish settlers to leave their homes in the West Bank but said a peace deal with the Palestinians was unlikely this year or in 2009.

Haim Ramon, a top deputy to Prime Minister Ehud Olmert and one of his closest confidants, said the government should offer each settler family living beyond the barrier Israel is building in the occupied territory some $300,000 to relocate.

"Greater Israel is a thing of the past," Mr Olmert told his Cabinet, which debated Mr Ramon's proposal for the first time. He was referring to many settlers' hopes of retaining all of the West Bank, land Palestinians want for a state of their own.

Facing possible indictment in corruption probes, Mr Olmert has promised to resign after his Kadima party holds an election on Wednesday to replace him. He could stay on as caretaker prime minister for weeks or months until a new government is formed.

Mr Ramon has said his "evacuation-compensation" plan could help bolster US-sponsored peace talks which Washington hopes can yield at least a framework agreement by the time President George W. Bush leaves the White House in January.

But at a news briefing after the cabinet session, Mr Ramon echoed pessimistic forecasts by Palestinians and top Western diplomats who see little chance of a breakthrough on issues such as borders, the fate of Palestinian refugees and the status of Jerusalem.