He said that maintaining sovereignty over an undivided Jerusalem, Israel’s official policy, would involve bringing 270,000 Palestinians inside Israel’s security barrier. It would mean a continuing risk of terrorist attacks against civilians like those carried out this year by Jerusalem Palestinian residents with front-end loaders.

Image Prime Minister Ehud Olmert at a cabinet meeting on Sunday. In an interview published Monday, he called for new thinking. Credit... Pool photo by Uriel Sinai

“A decision has to be made,” he said. “This decision is difficult, terrible, a decision that contradicts our natural instincts, our innermost desires, our collective memories, the prayers of the Jewish people for 2,000 years.”

The government’s public stand on Jerusalem until now has been to assert that the status of the city was not under discussion. But Mr. Olmert made clear that the eastern, predominantly Arab, sector had to be yielded “with special solutions” for the holy sites.

On peace with the Palestinians, Mr. Olmert said in the interview: “We face the need to decide but are not willing to tell ourselves, yes, this is what we have to do. We have to reach an agreement with the Palestinians, the meaning of which is that in practice we will withdraw from almost all the territories, if not all the territories. We will leave a percentage of these territories in our hands, but will have to give the Palestinians a similar percentage, because without that there will be no peace.”

Elsewhere in the interview, when discussing a land swap with the Palestinians, he said the exchange would have to be “more or less one to one.”

Mr. Olmert also addressed the question of Syria, saying that Israel had to be prepared to give up the Golan Heights but that in turn Damascus knew it had to change the nature of its relationship with Iran and its support for Hezbollah, the Lebanese militia.

On Iran, Mr. Olmert said Israel would act within the international system, adding: “Part of our megalomania and our loss of proportions is the things that are said here about Iran. We are a country that has lost a sense of proportion about itself.”