They were words few Israelis ever expected to hear from Ariel Sharon: that he could imagine a time when "there will be no Jews in Gaza."

Israel's hard-line Prime Minister made the statement last week while broaching the idea of evacuating perhaps all 17 Israeli settlements in the Gaza Strip, with their 7,500 residents.

What's Sharon up to? Some thought he was trying to draw attention from the corruption scandal swirling around him, but there's more to it than that. Senior Israeli officials tell Time the strategy is aimed at his longtime nemesis, Yasser Arafat. For Arafat, the good news is that, 26 months after the Israeli cabinet declared him "irrelevant," Israeli officials acknowledge that Arafat's ability to obstruct recent peace moves makes him relevant indeed. The bad news is that the strategy behind Sharon's new policy of "separation" from the Palestinians, of which the Gaza plan is a part, is to withdraw Israeli forces and settlers behind a defensible line and wait for the 74-year-old Arafat to die. Only then, Sharon believes, will a Palestinian leadership emerge that can negotiate peace.

Sharon, 75, is convinced no progress can be made on President Bush's "road map" peace plan as long as Arafat undermines the ability of the Palestinian Authority to rein in terrorists. So Israel intends to wait for a time when Arafat is no longer an obstacle, either because he is dead — he is reported to have stomach cancer — or because the Palestinian people have somehow removed him. "Most of the peace plans circulating now are a hundred-meter dash to the finish line," says one senior Israeli official. "This is a marathon — and it's going to be run uphill."

Even top Palestinian officials blame Arafat for blocking the crackdown on terror by his own Prime Minister, Ahmed Qurie. So Sharon must choose between the current bloody stalemate or a stalemate on his own terms, with

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nginx/1.14.0 (Ubuntu) Israel pulled back behind the "security fence" that snakes along the border of the West Bank and juts into occupied territory to protect settlements.

The full details of Sharon's project haven't yet been decided. His National Security Adviser, Major General Giora Eiland, is formulating the plans, which Sharon will take to Washington next month for approval and, of course, to raise some of the money that will have to be paid to compensate and relocate the settlers. Military officials say each of the 1,500 families in the Gaza Strip would get about $500,000, and the total cost of the evacuation would be at least $800 million. The biggest problem won't be the Gaza settlers, but the possibility that radical Jews will infiltrate the settlements and violently resist evacuation.

Before it comes to that, Sharon has to persuade his own Cabinet. Ministers from his Likud Party are opposed, and right-wing coalition partners might quit the government if he goes ahead. Still, there's broad public support for the Gaza withdrawal, and Sharon will be guaranteed the votes of leftist parties in the Knesset. But if another suicide bomber strikes, right-wingers will accuse the Prime Minister of rewarding terrorists by pulling out of settlements while Israel remains under attack. Political observers believe Sharon could also be pressured to resign if he's indicted in the ongoing bribery scandal.

Last month, prosecutors indicted property developer David Appel for allegedly giving bribes to Sharon and his son Gilad. The Attorney General is to decide in the next two months whether to indict Sharon.

Ordinary Palestinians find it hard to believe that Sharon, so closely associated with the Gaza settlements, will evacuate. The separation plan could go into effect as soon as June and be complete by early fall, but Palestinians are waiting to see if it actually happens. And the Palestinian Authority hasn't prepared a strategy to fill the gap should Sharon pull the settlers out. "Arafat is obsessed only with refusing anything Israel does," says one senior Palestinian official. Arafat aides fret that Israeli withdrawal from Gaza would leave the Strip, with its 1.5 million residents, open to the only group with a clear plan: the militants of Hamas.

• MATT REES | Jerusalem
• Israel's hard-line Prime Minister shocks everyone by saying he might pull all Jews out of Gaza