JERUSALEM - Palestinian officials Thursday gave a cool reception to a new Israeli plan to develop the West Bank economy, saying the initiative "will make things worse" if it is not accompanied by negotiations aimed at reaching a final peace accord.

The skepticism from the Palestinians came just over a week before the new Israeli prime minister, Benjamin Netanyahu, heads to Washington for talks.

Netanyahu, who took office in late March, is still formulating his foreign policy and is expected to present his vision for Middle East peace when he meets President Barack Obama.

Netanyahu has resisted international calls to endorse the goal of forming a Palestinian state on lands currently controlled by Israel. The "two-state solution" is a centrepiece of American policy in the region.

Netanyahu has argued that the Palestinians are not ready for independence. Instead, he has called for "economic peace," a vaguely defined plan to boost the Palestinians' moribund economy to lay the groundwork for future peace talks.

Netanyahu's office said late Wednesday that he would head a high-level committee that will work on developing the Palestinian economy and improving the quality of life in the West Bank.

The committee will include Israel's finance and defence ministers and will soon begin work on several development projects in the West Bank, the statement said.

The Palestinians have greeted Netanyahu's economic plan with skepticism, saying it is little more than a delaying tactic to prevent them from gaining independence. Palestinian President Mahmoud Abbas is scheduled to plead his case at the White House in late May, shortly after Netanyahu's visit.

Nabil Abu Rdeneh, a top aide to Abbas, said the coming weeks would be critical.

"We will see what Netanyahu presents to the Americans," he told The Associated Press. "If he is committed to the two-state solution, then there is a chance to move forward. But if he insists on talking about the economic solution, then this will be a waste of time."

"Without moving on the political track ... it will not lead to peace or solutions," he added. "On the contrary, it will make things worse."

One of the biggest obstacles for peacemakers is the internal rivalry that has left the Palestinians divided between two governments - Abbas' pro-western administration in the West Bank and the Hamas militant group's regime in the Gaza Strip. Hamas seized control of Gaza in June 2007 after routing Abbas' forces there.

Hamas and Abbas' Fatah movement have held months of negotiations aimed at forming a unity government. But on Thursday, an Abbas aide signalled the talks had failed, saying the president would soon ask his prime minister to form a new government without Hamas.

Abbas' prime minister, Salam Fayyad, stepped down in March to clear the way for the latest round of unity talks.

The aide, Yasser Abed Rabbo, noted that the Egyptian-brokered talks have gone nowhere. "If they continue like this, it could last for years," he said. Another round of talks is set for next week.

The sides remain deadlocked over Fatah's insistence that Hamas yield to international demands to recognize Israel, renounce violence and accept existing agreements between Israel and the Palestinians.

Early Thursday an Israeli soldier was killed during a clash with Palestinians in a West Bank village, the military said. He was identified as Sgt. Noam Rechter-Levi, 20. The military said he immigrated to Israel with his family from Canada 13 years ago. He was apparently killed by a bullet from his own rifle, but the circumstances were unclear.

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