Details of the proposals emerged as Al-Jazeera news channel began late Sunday to release the first of some 1,600 documents known as the "Palestine Papers" on more than 10 years of secret US-brokered Middle East peace talks.

The files, shared with Britain's Guardian newspaper, caused surprise and anger among Palestinian leaders, with chief negotiator Saeb Erakat saying they contained "lies" and president Mahmud Abbas saying they distorted the issue.

Described by Al-Jazeera and the Guardian as "the most important leak in the history of the conflict," the papers include hundreds of official Palestinian transcripts from private meetings with the Israelis.

Central to the revelations is a series of far-reaching Palestinian offers regarding Jewish settlements in occupied east Jerusalem, the scope of which have never been made public.

"What is in that paper gives them the biggest Yerushalaim in Jewish history," Erakat said in one of the documents, using the Hebrew name for the Holy City.

He was talking about a Palestinian offer in 2008 which would allow Israel to keep all but one of its settlements in east Jerusalem as well as the walled Old City's Jewish Quarter and part of the Armenian Quarter.

The offer was made during talks between Condoleezza Rice who was US secretary of state at the time, Israel's then foreign minister Tzipi Livni, former Palestinian premier Ahmad Qorei and Erakat, according to the documents.

"We proposed that Israel annexes all settlements in Jerusalem except Jabal Abu Ghneim (Har Homa)," Qorei is quoted as saying.

But Israel turned down the offer, refusing "to even place Jerusalem on the agenda, let alone offer the PA (Palestinian Authority) concessions in return for its historic offer," the papers show.

In other papers to be released in the days ahead, Erakat was also said to have offered to accept the return of only 100,000 refugees who fled or were forced out when Israel was founded in 1948.

They now number -- with their descendants -- almost five million.

The report comes as world powers seek ways to haul Israel and the Palestinians back to the negotiating table after direct peace talks broke down last September in a dispute over Jewish settlements.

The revelations prompted a furious reaction from the Palestinians, with Erakat accusing Al-Jazeera of a smear campaign.

"Al-Jazeera's information is full of distortions and fraud," he told AFP from Cairo where he was accompanying Abbas, saying the revelations were taken "out of context and contain lies."

Erakat, who was widely quoted in the papers, later issued a statement that the two sides had discussed "many ideas... including some we could never agree to" as part of the negotiation process.

Speaking after meeting Egypt's President Hosni Mubarak, Abbas accused the Doha-based satellite channel of deliberately mixing up the Palestinian and Israeli positions.

"Their goal is to mix things up," he charged, suggesting the channel had attributed Israeli positions to the Palestinians.

The United States acknowledged that the release of the secret Palestinian files made the Middle East situation "more difficult." but said a framework peace deal remained possible.

"None of this changes our understanding of what is at stake and what needs to be done," State Department spokesman Philip Crowley said.

"We don't deny that this release will, at least for a time, make the situation more difficult than it already was, but again, we are clear-eyed about this, we always recognised that this would be a great challenge but it doesn't change our overall objective.

"We continue to believe that a framework agreement is both possible and necessary, so we continue to work and engage the parties as we've done throughout the process," he said.

The UN special coordinator for the Middle East peace process, Robert Serry, who has been involved in Israeli-Palestinian talks since 2007, "said that some of the commentary he has seen conveys an inaccurate impression," a UN spokesman said.

Serry said he could "personally attest" to the commitment of Palestinian leaders to secure the full rights of their people, spokesman Farhan Haq told reporters at the United Nations.

But Gaza's Hamas rulers said the revelations revealed "the ugly face" of Abbas's leadership, with spokesman Sami Abu Zuhri saying it was "cooperating with the occupation."

Israel offered no official reaction, and Livni, now the opposition leader, said only she would "continue to maintain discretion of the talks, in order to protect Israeli interests."

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