JERUSALEM, Jan 24 (Reuters) - Palestinian negotiators secretly indicated they were ready to accept the return of a limited number of refugees as part of a peace deal with Israel, reports of documents leaked on Monday said.

Qatari-based Al Jazeera television and the British newspaper the Guardian said Israel proposed swapping villages inhabited by its Arab citizens for Jewish settlements in the occupied West Bank, during the inconclusive peace talks held two years ago.

The documents cited were among 1,600 that both news organizations began releasing on Sunday and which suggest that Palestinian negotiators were willing to yield more ground on core conflict issues to Israel than publicly stated.

Palestinian officials have said the leaks include previously published information and have denounced their current release as an act of sabotage designed to mislead the public.

Documents published on Monday focused on discussions in past peace talks on the future of an estimated six million Palestinian refugees, many of them descendants of those who fled or were driven out during the war over Israel's founding in 1948.

Many refugees live in territory Israel captured in the 1967 Middle East war or in neighboring Lebanon, Syria and Jordan where most have not been granted citizenship.

One leaked document shows that Palestinian President Mahmoud Abbas argued at a meeting with Palestinian officials in March 2009 against a large-scale return of refugees, calling it illogical to ask Israel to take five million or indeed one million -- that would mean the end of Israel.

He indicated Israel had agreed to take in 5,000 refugees over five years. Other documents suggest Israel later increased its offer to closer to 25,000.

Israel has previously signaled it would object to any large scale return of refugees to anywhere but a Palestinian state, envisaged for the West Bank, fearing an influx to Israel would undermine efforts to maintain a Jewish majority.


EREKAT ON REFUGEES 'THE DEAL IS THERE'

Al Jazeera quoted Saeb Erekat, the Palestinian Authority's chief negotiator, as telling U.S. Middle East envoy George Mitchell in February 2009 that on refugees, the deal is there.

Erekat is quoted as saying in January 2010 that the Palestinians had offered Israel the return of a symbolic number of refugees and that refugees dotted around the world would not have a say in a promised referendum on any peace deal.

Discussions of possible Palestinian land swaps with Israel have been reported in the past from peace talks, enraging some Israeli Arabs, who unlike Palestinians living in occupied land are enfranchised citizens of Israel.

The latest documents offered new details on Israeli villages considered for such a swap, such as a June 2008 meeting at which Baqa al Gharbiya, a village bordering the West Bank, and Beit Safafa, a Jerusalem suburb, are named as candidates for a swap. Israeli officials have largely declined comment but an unnamed official in Prime Minister Benjamin Netanyahu's office was widely quoted as scoffing at leaks suggesting the Palestinians were willing to yield control of parts of East Jerusalem for a peace deal.

The official said this showed it is ridiculous to demand a (settlement) freeze, an issue over which U.S.-brokered peace talks collapsed in September, when Israel refused to renew a partial hiatus of its construction in West Bank enclaves. (Additional reporting by Crispian Balmer, and Yasmine Saleh in Cairo, Nidal al-Mughrabi in Gaza; editing by Tim Pearce)