JERUSALEM: Israel and the Palestinians are set to resume direct peace talks in Washington on September 2. Seventeen years after the Oslo peace accords were signed, the two sides remain far apart on these key issues.

PALESTINIAN STATE AND POWERS

The Palestinians want an independent and fully sovereign state made up of the West Bank and the Gaza Strip. Israel wants a demilitarised Palestinian state whose airspace and foreign borders it controls.

PALESTINIAN BORDERS AND JEWISH SETTLEMENTS

The Palestinians want Israel to withdraw from all Palestinian land occupied since the 1967 war and to dismantle all Jewish settlements, though they have accepted the principle of land swaps.

Israel rules out a full return to pre-1967 borders but is ready to pull out of some parts of the West Bank while annexing its largest settlements.

The Palestinians want a freeze on all settlement building during the talks. In November, Israel announced a partial 10-month moratorium that does not include east Jerusalem.

JERUSALEM

Israel captured Arab east Jerusalem in 1967 and later annexed it. It considers the city its "eternal and indivisible" capital.

The Palestinian Authority wants to make east Jerusalem, home to some 260,000 Palestinians and more than 200,000 Israelis, the capital of its future state.

At the 2000 Camp David peace talks, Israel offered to share sovereignty over the Arab sector. Prime Minister Benjamin Netanyahu has not reiterated the offer.

REFUGEES

The Palestinians demand that Israel recognise the "right of return" of the Palestinians who fled or were expelled when the Jewish state was created in 1948, and their descendants, a total of 4.7 million refugees.

Israel rejects the demand.

WATER

Israel controls 80 percent of underground water resources in the West Bank. The Palestinians want a more equitable share.

"JEWISH CHARACTER" OF ISRAEL

Netanyahu wants the Palestinians to accept Israel as "the state of the Jewish people." Palestinians reject a demand they say implies an implicit renunciation of the right of return for refugees.

BDST: 0953 HRS, August 30, 2010