Israeli prime Minister Benjamin Netanyahu appears to be moving closer to the international plan for a two-state solution based on 1967 borders.
A letter sent by Mr Netanyahu to the Middle East Quartet meeting in Washington three weeks ago, parts of which were leaked to the press this week, revealed the shift in his policy.
In the letter, Mr Netanyahu agreed to negotiate with the Palestinians over a two-state solution based on the 1967 borders, with territory exchanges that reflect the settlement blocs near the "green line".
Sources in the Prime Minister's Office said that the government is working with the American administration to find a way to re-launch peace talks with the Palestinian Authority in order to ward off the Palestinian plan to gain recognition for an independent state at the UN General Assembly next month.
The formula that was presented to the Quartet three weeks ago was not accepted due to Russian and EU opposition to Mr Netanyahu's demand that the Palestinians accept Israel's identity as a Jewish state.
Sources say Israel is seeking to ward off a Palestinian independence bid at the UN
Israel's proposal to the Quartet included the words "the border should be based on the 1967 borders with agreed territorial exchanges" and "the borders will be different from those of June 4, 1967, and will take into account the changes of the last 40 years".
In effect, this means that the Netanyahu government accepts the formula proposed two months ago by American president Barack Obama and has backed down from its previous position that the 1967 borders are "indefensible".
However, the Prime Minister's Office denied this week that the proposal implied a change in Israeli policy.
Palestinian spokesmen have so far been wary of accepting Mr Netanyahu's proposal, saying that he should first announce in public his willingness to accept the 1967 borders.
Secret talks in recent weeks between senior Palestinians and President Shimon Peres have not yielded a breakthrough.
The talks took place with the Prime Minister's authorisation but a planned meeting in Jordan last Thursday between Mr Peres and Palestinian President Mahmoud Abbas was cancelled at the last minute on Mr Netanyahu's orders. The PM decided that President Peres had gone too far in proposing concessions to the Palestinians.
Sources close to the talks said that the Prime Minister was worried that he did not have the sufficient backing within his coalition for talks to be based on the principles being discussed between Mr Peres and Mr Abbas.