There are increasing signs that the Palestinians and Israelis will announce the launch of direct peace talks at some point this week.

There was intense media speculation over the weekend about an imminent announcement from Palestinian President Mahmoud Abbas that would confirm his side's participation in face-to-face negotiations.

Until now Abbas has refused to allow his team to sit in the same room as their would-be Israeli interlocutors. He has argued that Israel has not made clear that it is truly committed to a peace process that would result in the establishment of a Palestinian state based on the pre-1967 borders of the State of Israel.

While most local analysts believe the direct negotiation is imminent, they are more concerned about where the talks are heading.

Palestinian, Israeli demands

The Six-Day War created what the international community refers to as the occupied territories -- the West Bank and Gaza.

The Palestinians view these areas along with East Jerusalem as their rightful territory. However, during the course of the last 43 years, Israel has established settlements throughout the West Bank.

As a result, Israel's hawkish government insists any land-for- peace deal must allow major Israeli settlement blocs to remain in situ and that they become a part of sovereign Israel after any final agreement.

The Palestinians are seemingly prepared to allow Israel to retain some settlements in exchange for land of equal size and quality in what is present-day sovereign Israel.

The sides will spend some of their negotiation time discussing the percentages of such a swap, but the formulas already exist from previous talks and any deal is expected to include a two to six percent exchange.

What Israel may find a more difficult pill to swallow is the fate of Jerusalem. While Israel agreed to a 10-month building freeze in the West Bank that will come to an end in September, it refused to apply any such construction moratorium to the city it sees as its "united, indivisible capital."

The United Nations perceives the eastern sections of Jerusalem to be occupied and does not recognize Israel's claim to the entire city. While many in Israel argue that the Jewish state does not need to control the Arab neighborhoods, there is far more support for the retention of much of the historically crucial Old City. That houses the site of the two ancient Jewish Temples but is currently the home to Islam's Dome of the Rock and Al-Aksa Mosque.

These issues, along with the fate of the Palestinian refugees and arguably most importantly security guarantees for both sides, will be the substantive areas discussed in any upcoming parley.