Jerusalem - The Israeli government is deeply divided ahead of a debate scheduled for Sunday on a proposed law offering compensation to Jewish settlers who leave parts of the occupied West Bank from which Israel plans to withdraw under a future peace deal.

Deputy Prime Minister Haim Ramon, who initiated the proposal, accused Foreign Minister Tzipi Livni Thursday of adopting the position of the hardline opposition Likud party.

Livni opposes the proposal, saying it was too early to offer compensation to settlers who are willing to leave those West Bank areas now.

She told a meeting of the ruling Kadima party in Tel Aviv late Wednesday that "a decision on the issue should be taken only after the final borders are defined." She was referring to the final border between Israel and the future Palestinian state in the West Bank.

Olmert's Kadima party wants to withdraw from most of the West Bank, but keep Israel's main settlement blocks located around Jerusalem and to the west of its controversial security barrier, which swallows up some 8 per cent of the West Bank.

Up to 70,000 of the more than 270,000 Jewish settlers in the West Bank live to the east of the barrier and would be evacuated under Kadima's plan for a peace deal with the Palestinians.

Ramon, considered one of Olmert's closest confidents who serves also as a minister without portfolio, wants to offer compensation to settlers who voluntarily leave already now either to Israel proper or to the settlement blocks which it wants to keep.

He has worked on his "Evacuation Compensation Bill" for the past year with Olmert's knowledge and green light and wanted to presented it to the government already in March, but the debate was postponed because of the police investigation against the Israeli premier.

The cabinet is now scheduled to discuss the proposal for the first time on Sunday, but no vote is expected as yet.

Olmert is being investigated over a host of corruption suspicions, and has announced he will resign after his Kadima party elects a new leader later this month.

Livni is the favourite candidate to succeed him, followed by Shaul Mofaz, a former defence minister and army chief of staff seen as a relative hawk in Kadima who now serves as transportation minister.

According to the latest opinion poll published in the authoritative Ha'aretz daily Thursday, Livni has a strong lead over Mofaz, with 40 per cent of Kadima members saying they would vote for her in the September and 20 per cent for Mofaz.

That would be enough for her to win the party leadership contest already in the first round on September 17.

If she wins the Kadima primaries and fails to form a new coalition government, new elections are expected in Israel sometime next spring, a year ahead of schedule.

Both Livni, who heads the Israeli teams in the negotiations with the Palestinians, and Mofaz oppose Ramon's early compensation bill, with the second-favourite Kadima candidate saying it would "weaken Israel and its position in future negotiations."

Ramon, however, has argued the bill could avoid or at least ease a mass evacuation of settlers by force in the future and says it would also signal to the world that Israel is serious about withdrawing from most of the West Bank and the establishment of a Palestinian state there.

"There are people living on the other side of the fence (West Bank barrier.) We told them de-facto that when there is peace, they won't be under Israeli sovereignty," Ramon told Israel Radio Thursday.

Despite this, he said, Livni and the Kadima leadership candidates were telling those some 70,000 Jewish settlers living to the east of the barrier to stay where they are "against their will - just like the Likud. There is no difference."