Prime minister Ehud Olmert appeared to suggest on Monday that Israel would consider handing over outlying Palestinian neighbourhoods of Jerusalem in a future peace deal. Olmert, a former Jerusalem mayor, questioned the logic of a decision to include those areas in the city’s expanded municipal boundaries after Israel captured Arab East Jerusalem in the 1967 West Asia war.While Israel “established great neighbourhoods” of its own in eastern parts of the city, he said, it also placed a refugee camp and several other outlying Palestinian neighbourhoods and villages within the widened boundaries. His comments headlined Israeli news websites, which interpreted the remarks as suggesting a willingness for territorial compromise in Jerusalem. Israel annexed East Jerusalem after the 1967 war, in a move that has not won international recognition. It considers all of Jerusalem as its capital.