Nov 26 (Reuters) - The United States will host a peace conference in Annapolis, Maryland, on Tuesday aimed at relaunching talks on Palestinian statehood after a 7-year break.

How far apart are Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas on some of the biggest issues negotiators will face after the Annapolis meeting?

SECURITY:

Israel has said that no agreement will be implemented until the Palestinians dismantle militant groups. Palestinians say Israeli occupation in the West Bank hinders their efforts. Hamas Islamists opposed to Abbas control the Gaza Strip.

BORDERS:

Olmert has privately expressed a willingness to relinquish "90-something" percent of the West Bank territory, along with 100 percent of the Gaza Strip, as part of a final peace deal, Western officials said.

They said Olmert was likely to offer at least 92 percent of the West Bank, with a land swap to compensate the Palestinians for Jewish settlement blocs that would be part of Israel. The officials said they believe Olmert would be prepared to offer Israeli lands equivalent to between 4 and 6 percent of the West Bank in exchange for the settlements.

Israeli officials and Western diplomats said Olmert wants to be compensated in territory for a 35-km (20-mile) corridor of land that would be used to connect the West Bank to the Gaza Strip. It is unclear how much land this would entail or whether this would be part of the exchange for the settlement blocs.

Abbas has demanded the equivalent of 100 percent of the West Bank and Gaza Strip, a land area he says totals 6,205 sq.km. (2,396 sq. miles). That is how much Palestinian territory Abbas estimated Israel captured in the 1967 Middle East war.

But Abbas has also raised the possibility of amending the pre-1967 lines. Palestinian officials say Abbas may be willing to accept a 1.5-to-2 percent land swap, provided the end result is a state on 6,205 sq.km. of territory.

JERUSALEM:

Abbas is demanding that Arab East Jerusalem be the capital of any future Palestinian state. West Jerusalem would be the capital of Israel. Israel at present regards all of Jerusalem as its capital but this is not recognised internationally.

One of the biggest sticking points is how to administer the Old City, site of Judaism's Western Wall and Islam's al-Aqsa mosque and Dome of the Rock, as well as Christian holy sites.

One of Olmert's closest confidants, Vice Premier Haim Ramon, said Israel should in future negotiate creation of a "special regime" that would govern the Old City's sacred sites.

In a proposal to end the conflict in December 2000, U.S. President Bill Clinton called for Palestinian sovereignty over the area where al-Aqsa and the Dome of the Rock stand. Israel would have sovereignty over the Western Wall.

There would be an international monitoring system.

REFUGEES:

Ramon said Olmert's government would not allow a formal "right of return" for millions of Palestinian refugees to what is now Israel. But Ramon said some Palestinians could ask to settle in Israel on humanitarian grounds.

Israel wants Abbas to give up the "right of return" in exchange for Israeli concessions on Jerusalem and borders.

Abbas has pointed to language on the right of return in U.N. resolutions and an Arab League peace plan as possible models.

First launched in 2002, the Arab initiative calls on Israel to reach an "agreed and just" solution for Palestinian refugees based on U.N. Resolution 194, which calls for the return of refugees -- and compensation for those who do not go home. (Reporting by Adam Entous and Wafa Amr)

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