Powell Outlines Middle East Peace Plan

US secretary of state Colin Powell today began to sketch out Washington's plans for peace in the Middle East, telling a London-based Arabic newspaper that the process may begin with a transitional or temporary Palestinian state.

As the Israeli prime minister, Ariel Sharon, flew to London on the final leg of a tour to Europe and the US, Mr Powell said that the US president, George Bush, could announce in the "very near future" how he intends to secure a Palestinian state.

"The president has not retreated from his goal," Mr Powell said.

"He knows that in order to achieve this vision, it might be necessary to set up a temporary state as a transitional step."

The president and Mr Powell have insisted on democratic reform within the Palestinian Authority. But at the same time, the secretary of state has indicated the process of reform should not halt the establishment of a state on land held by Israel.

Mr Sharon was in Washington earlier this week to make sure Mr Bush was aware of his views while formulating his Middle East policy.

During a round of meetings on Capitol Hill, Mr Sharon praised US efforts to help escort Israel and the Palestinians to peace negotiations and said he would not rely on the EU because of what he called Europe's historically unbalanced approach to Israel.

The EU is the largest donor of economic aid to the region, especially to the Palestinians, but Israel and the US have always kept the EU away from peace talks, wary of what they see as a pro-Arab tilt in some European governments

The EU has been at the forefront of those demanding Palestinian statehood in the short term and is threatening to impose tariffs on imports from Jewish settlements in the West Bank and Gaza Strip.

In an address to the European Parliament, King Abdullah of Jordan called for the EU to play a leadership role in pushing Israel and Palestinians to end their fighting, which he warned could lead to greater extremism if not stopped.

"This ugly wound holds back progress in the Middle East and inflames extremism," he said.

The king called on Israel to accept a land-for-peace proposal put forward by Saudi Arabia's Crown Prince Abdullah earlier this year.

Israel has also alleged that EU aid money to the Palestinians is being diverted to pay for terror attacks against Israelis. The EU says its has found no evidence of this.

In other developments, the Israeli finance ministry announced that the Jewish state is redirecting $1.2m (£860,000) earmarked for Palestinian aid projects to security for Israeli politicians such as the former prime ministers Benjamin Netanyahu and Ehud Barak.

A finance committee spokesman in the Israeli parliament, Zvi Rosen, said: "The reason given was that if the Palestinians create terror, the money will go to prevent terror."