Palestinian Authority leader Yasser Arafat and Israeli Prime Minister Ehud Barak have set themselves a deadline of October 2000 to conclude final status negotiations. Andrew Album looks at one of the most intractable problems - the Palestinian refugees.

Fifty years ago, both the state of Israel and the Palestinian refugee problem were created. Half a century later, the Israeli and Palestinian leaderships have reached the point when the latter issue must be resolved.

According to Ghassan Khatib, head of the Jerusalem Media and Communications Centre the issue "is perceived as the root of the whole Palestinian problem. There is the aspect of responsibility for the tragedy of four or five million people. It is the essence of the whole conflict."

The refugees campaign is supported by UN Resolution 194, which was passed in 1948 and remains the cornerstone of the Palestinian Authority's position towards the issue. It says that those refugees who wish to return home peaceably should be permitted to do so at the earliest practicable date, and that compensation should be paid for the property of those choosing not to return.

One issue that will need to be resolved is the question of how many refugees there actually are. The United Nations Relief and Works Agency (UNRWA) believes that there were 785,000 refugees in 1949 and that numbers have now swollen to 3.625 million.

Not surprisingly, both sides dispute this figure. The Israelis claim that there are only two million refugees today, whilst the Palestinian Authority claims that five million is a more realistic figure.

Peter Hansen, commissioner-general of UNRWA, notes that "of course there are margins of uncertainty in any registration process." He is quick to add. "We keep our records as up to date as best we can, and we're very strict with the registration criteria for the use of UNRWA services. You'll see that we represent the mid-figure between the conflicting parties."

As has so often happened in the past, the only attempts to bridge the vast differences in opinion have come in academic circles. The most significant of these has been a Harvard University-sponsored joint Israeli-Palestinian study carried out in 1998. Even this failed to come up with a proposed agreement on this complex refugee issue.

An Israeli acknowledgement of some responsibility for the creation of the Palestinian refugee problem, whilst underlining that this is shared with both the Palestinian leadership of the time and the Arab states. The acceptance is of practical, rather than moral responsibility.

The Palestinian refugees have the "right of return" but this right will not be exercisable to areas within the state of Israel. Rather, it will result in refugees returning to the new Palestinian state, at a rate of absorption that the fledgling country can cope with.

As a concession, Israel would permit a symbolic return of some refugees (in the tens of thousands) under its existing family reunification programme.

Collective compensation would be paid by the state of Israel, but this would be reciprocated at least in part by a payment from Arab countries for property confiscated from their own Jewish populations.

The Palestinian compromise position essentially consists of the following:

An Israeli acknowledgement of responsibility for the creation of the Palestinian refugee problem.

An acceptance that all Palestinian refugees have a moral right to return to their homes. However, the Palestinians will accept that only some would actually be able to exercise this right and return to places that are within the state of Israel.

All other refugees would instead have the right to move to the new Palestinian state.

Those Palestinians who elect not to exercise this right of return will be entitled to individual compensation, whilst a further lump sum payment will be made by Israel to the new Palestinian state to help it meet the cost of absorbing all of the returnees.

As can be seen, this leaves some clear areas where there is a fundamental divergence between the two sides.

The nature of Israeli acceptance of responsibility - as far as virtually all Israelis are concerned, prime responsibility for the creation of the Palestinian refugee problem lies elsewhere.

The Palestinians see it differently but it will be difficult to persuade the Israelis that their state was effectively born in sin.

The number of Palestinian refugees who could return to Israel -

Even As'ad Abdal Rahman is prepared to concede at this stage that any return will be gradual. "If there is a need to phase implementation for practical reasons," he says, "or start with those in the most miserable conditions, we are willing to act according to the stipulation of practical needs, so long as no limit is placed on numbers."

But other Palestinians have been prepared to acknowledge that Israel is not going to agree to the return of millions of refugees, which would effectively imply the creation of a bi-national state. Academics such as Abbas Shiblak and Ziyad Abu Zayyad talk, instead, of a symbolic return to homes in Israel of only a limited number of Palestinians, whilst affirming that all refugees retain the moral right of return. Such a proposal is the most likely one to be adopted.

Whilst a blanket right of return of refugees to the new Palestinian Authority would be welcomed by many, it would inevitably trigger a new round of problems. On the Palestinian side, there would inevitably be some local resentment but this would be dwarfed by the economic impact - initially, this would mean massive unemployment and a huge absorption cost which would require outside funding.

An important lesson can be drawn from recent Israeli experience - the mass immigration in the early 1990s from the former Soviet Union initially caused mass unemployment and social strains but eventually triggered a phase of tremendous economic growth. It will be difficult for the Palestinians to replicate this as their economy is less advanced, but a phased return might work better.

For those refugees who do not return, compensation will be demanded. The Palestinian state will also demand financial compensation to deal with the cost of the refugee influx. Eventually, a compromise figure can no doubt be reached, with the help of Western largesse.

As far as the Israelis are concerned, a counterclaim must also be considered, in relation to the 450,000 Jews who fled or were forced from the Arab countries in the period after 1948.

As'ad Abdul Rahman dismisses any suggestion of linkage. "This needs to be solved bilaterally between Israel and Iraq, Syria and Yemen. If Israel could prove the PLO was responsible, then we would share [in this]. But why should we be responsible for what happened in Vietnam, Kuala Lumpur or in this or that Arab capital?" he asks.

To further back up their argument, one Palestinian politician adds that, "when Israel concluded a peace treaty with Egypt, it ignored assets previously owned by members of the Egyptian Jewish community. That sets a precedent for now."

With such marked areas of divergence, pessimists might conclude that the Palestinian refugee problem cannot be solved. The authors of the Harvard report do not share this view. Their study concluded, "certainly it seems doubtful that a solution to the refugee issue will be concluded, as we have ostensibly endeavoured to do here, on a stand alone basis."

Instead, the academics believe that the refugee issue can be solved as part of an overall agreement in which each side makes additional concessions with regard to specific issues. The report suggests that "Israel might make concessions on refugee issues in return for Palestinian concessions on settlement issues. Conversely, Palestinian willingness to show flexibility on the right of return might be made contingent on Israel's flexibility on territorial issues."

Palestinian academic Yezid Sayigh agrees that this approach is the most likely to succeed. "Without trade-offs, it will be difficult to come up with a convincing deal," he says.

Ghassan Khatib, who was also a member of the working party believes that the issue won't be resolved, but he also does not think that this will necessarily preclude an overall Israeli-Palestinian deal. The refugee problem will be dealt with in part, he says, and the disagreements left for future resolution.