HERZLIYA, Israel – Prime Minister Sharon yesterday signaled that his government would be willing to negotiate with an elected Palestinian leadership in the coming year, even if it did not fully eradicate terror.

In a speech here at the annual conference sponsored by the Institute for Policy and Strategy, the prime minister said he would be willing to negotiate with a government “which is ready and able to take responsibility for the areas which we leave.” He added, “If this happens, we will have a genuine chance to reach an agreement, and in the future, perhaps also a genuine peace.”

That signals a change for Mr. Sharon, who has premised official discussions with the Palestinian Arabs on their performance in curbing terror and ending incitement. It is significant because Mr. Sharon has used the forum of the annual Institute for Policy and Strategy’s conference to set his government’s agenda for the next year. Last year at this time, the Israeli leader announced his plan to dismantle settlements in Gaza, a strategy he touted again this year despite the potential for early elections.

Yesterday, Mr. Sharon’s top adviser, Dov Weisglass, hinted that Israel would send representatives to a conference of European, American, and Palestinians scheduled for London in February. Israeli officials here said the Foreign Ministry has already signaled it will send representatives to the meeting.

Palestinian officials yesterday said they hoped the meeting, which is expected to be announced next week by Prime Minister Blair, will kick-start negotiations on a final settlement.

A senior Fatah leader yesterday told foreign and Israeli journalists here that he thought the January Palestinian elections would present an opportunity to restart peace talks that failed nearly four years ago in Taba. But Hani al-Hassan also indicated that the Palestinian position on the “right of return” for refugees to Israel’s pre-1967 borders would depend on the chances for a negotiated agreement between both parties, a position he is pushing in his own party, which is expected to win the elections next month. For now, the expected winner of that contest, Mahmoud Abbas, has stood behind the “right of return” on the campaign trail.

In America, President Bush has said that he would not pressure Israel into peace talks before Palestinian reform, a policy pursued by President Clinton during the years of the Oslo Accords. But one of Mr. Clinton’s old peace partners, Ehud Barak, yesterday said he expected such pressure was coming.

In a sign of the political repercussions of Mr. Sharon’s disengagement plan, Mr. Barak, who insisted on negotiating with Yasser Arafat during the first months of the intifada, carved out a position to the right of the man who beat him in the 2001 elections. Mr. Barak called on Mr. Sharon to accelerate the pace of construction of the security fences around Jerusalem and surrounding settlements.

The theme of the conference this week of top Israeli strategists was the new opportunities created by Mr. Sharon’s disengagement strategy and the November 11 death of Arafat. Panels here discussed working papers on the possibility of Israel joining the North Atlantic Treaty Organization and even the European Union. One hot topic was the prospect of a settlement of the conflict that would create a federated arrangement between Israel, Palestine, and Jordan – similar to the agreements that bind Belgium, Luxemburg, and the Netherlands.

So far, Mr. Sharon is playing his cards close to his vest. In his address last night he did not mention the security fence that most of Israel’s top security officials believe is largely responsible for the precipitous decline in suicide bombings. The fence, combined with an aggressive policy of targeted killings, have led most strategists to conclude that in the short term the Jewish state can win its war on terror without addressing the aspirations and grievances of Palestinians.

Mr. Sharon instead focused on his hopes for the future. “A two-state vision involves great sacrifice on both sides,” he said. “We made a historic decision that we were prepared for such a sacrifice, since the alternative of one nation, where one rules over another, would be a horrible disaster for both peoples.”