The agreement will be signed on Saturday in the Egyptian Red Sea resort of Sharm El-Sheikh, a smiling Albright announced after emerging from a late-night meeting with Palestinian leader Yasser Arafat at his seaside headquarters in Gaza city.

The agreement marked a diplomatic triumph for Albright, but she was careful to give most of the credit to the Israeli and Palestinian negotiators. ``They have really seized, I believe, historic opportunity,'' Albright told a news conference.

``Working intensively, the Israelis and Palestinians solved problems together, negotiated solutions together and began to re-establish trust and confidence in each other,'' she said.

Under the agreement, a revision of the Wye River accord signed nearly a year ago at the White House, Israel willwithdraw from 11 per cent of the West Bank in three stages, starting in the next few days and ending January 20.

Israel also pledged to release hundreds of Palestinian security prisoners. Palestinian Planning Minister Nabil Shaath would not give the exact number, but Israeli officials said earlier on Friday that the Palestinians had agreed to an Israeli offer to free 350.

The dispute over the prisoners had been one of the last major sticking points, with the Palestinians initially demanding freedom for 650, then for 400 detainees.

Shaath said a bilateral committee would discuss the release of additional prisoners in December, around the start of the Muslim fasting month of Ramzan.

Another sticking point was the wording of a clause that bars both sides from taking unilateral steps in the West Bank and Gaza Strip. It was not clear how the dispute was resolved.

However, Israel apparently wanted ironclad guarantees that Arafat would not declare independence unilaterally.

Under the accord, the talks ona permanent peace agreement are to begin within the next few days and conclude within a year.

Within five or six month, the parties would complete a framework agreement that would outline solutions for some of the most complex issues, such as Palestinian statehood, the status of Jerusalem -- which the Palestinians want as their capital, the fate of Palestinian refugees and the future of Jewish settlements in Palestinian-majority areas.