Israel is conducting secret negotiations with the U.S. on establishing the future borders of a Palestinian state, the London-based Arabic language daily Asharq al-Awsat reported on Friday.

According to the report, Palestinian sources confirmed that the two sides discussed an option wherein Israel may lease lands in East Jerusalem from the Palestinians in exchange for the establishment of an independent Palestinian state.

Open gallery view East Jerusalem. Credit: Olivier Fitoussi

Israel would lease the territories from the Palestinian state for a period of 40 to 99 years.

The Palestinian sources said that the talks are an American initiative that has been going on for some time in order to obtain an understanding with Israel regarding the terms surrounding a future Palestinian state.

The Palestinian Authority apparently has only recently been made aware of the talks and hasn't been given the details of the proposal.

An Egyptian source told the newspaper that the negotiations are "more quiet than secret, and are meant to try to save the peace process."

Neither the Prime Minister's Office nor the U.S. government agreed to comment on the report.