During closed-door meeting with deputies from his Likud party, Sharon said Israel must "ease the closure or risk provoking the collapse of the Palestinian Authority, which would force us to take administrative responsibility for 3,7-million Palestinians," a source close to him said.
Sharon was speaking late Monday ahead of the expected investiture of his Palestinian counterpart Ahmed Qorei's government at a parliamentary session today.
Both sides have indicated they are willing to resume official top-level contacts, which have been frozen for nearly three months.
The internationally backed drafted peace "roadmap" has stalled completely since Israel severed relations with the Palestinians after a massive suicide bombing of a bus in Jerusalem on August 19.
"If we do not ease the closure we risk affecting our friends in the Palestinian camp, who tell us they are taking measures to protect the Israeli population, but also to allow Palestinians to live," the Israeli official added.
"Israel does not want to face accusations from abroad that it is provoking the collapse of the Palestinian Authority", he said, adding, "the chaos would play into the hands of (veteran leader Yasser) Arafat".
Israeli army chief of staff General Moshe Yaalon warned last month that the uncompromising policy towards the Palestinians was counterproductive, as it would merely serve to foster extremism.
Qorei is expected to present his programme to a session of the Palestinian Legislative Council (PLC), or parliament, in the West Bank town of Ramallah today and put his 24-member cabinet up for a vote of confidence.
In particular, he is expected to flesh out his plans to institute a mutual ceasefire with Israel, something he has already made the top priority of his new government.
Qorei met with some members of the new cabinet in Ramallah yesterday to discuss the speech.
Foreign minister Nabil Shaath told reporters after the gathering that Qorei would unveil a programme aimed at securing "an Israeli withdrawal from the Palestinian cities and stop the suffering of the Palestinian people and stop the settlements and the wall", a reference to a controversial separation barrier being built by Israel in the West Bank.
"To achieve these objectives we must work to reach a ceasefire based on Palestinian agreements and after that Israel must respect what we have reached".
Asked about the prospect of a Qorei-Sharon summit, Shaath said: "Until now we don't have any specific dates but the cabinet will have a meeting tomorrow after they have the confidence from parliament and we will discuss this issue".
The US, the chief sponsor of the "roadmap", has so far withheld judgement on Qorei's new cabinet, but demanded that his government take immediate action against anti-Israeli violence once it takes office.
"What we have to see ... is the commitment and the resources to move against terrorism," State Department spokesperson Richard Boucher said.
Palestinians have grown increasingly frustrated at what they see as Washington's reluctance to put pressure on Israel to help kick-start the peace process.
US Deputy Secretary of State Richard Armitage, on a visit to Egypt yesterday, denied Washington was reluctant to use its influence but said that this would not be done in public.
"The support for the US for Israel is something that is a bedrock principle of the US," said Armitage.
"We have very in-depth and intense discussions with Israel. And we feel the best and most effective way to have those discussions is official-to-official privately rather than standing up and screaming from the top of some building across the street at the Israelis". – Sapa-AFP.