RAMALLAH/JERUSALEM, Jan 27 (Jihan Abdalla and Dan Williams/Reuters) - Israel has presented Palestinians with its ideas for the borders and security arrangements of a future Palestinian state, in a bid to keep exploratory talks alive, Palestinian and Israeli sources said on Friday.

However, Palestinian officials said the verbal presentation by Israeli negotiator Yitzhak Molcho at a meeting on Wednesday was a non-starter, envisaging a fenced-off territory of cantons that would preserve most Jewish settlements.

He killed the two-state solution, set aside previous agreements and international law, said a Palestine Liberation Organization source. Basically, the Israeli idea of a Palestinian state is made up of a wall and settlements.

It was the first time Israeli Prime Minister Benjamin Netanyahu's administration has broached the issue of borders with Palestinians. An Israeli official said the presentation was in line with a framework for talks set by the Quartet -- the United States, European union, Russia and the United Nations.

Its aim is to ensure that the core issues of borders and security were clearly set out by Jan. 26, with the goal of relaunching negotiations stalled since November 2010, to reach a framework peace accord by the end of this year.

After five rounds of talks in Jordan, including Wednesday's session, the Palestinian source said there are no more meetings scheduled. Palestinian President Mahmoud Abbas has said he wants to consult Arab League states on the next move.

According to the Palestinian source, Molcho's team suggested that any solution creating a Palestinian state living in peace alongside Israel needs to preserve the social and economic fabric of all communities, Jewish or Palestinian.

The idea presented by Molcho does not include Jerusalem and the Jordan valley, and includes almost all (Jewish) settlements, the Palestinian official said.

No maps were presented at the meeting, he added.

GUIDING PRINCIPLES

The Palestinians want a state including the West Bank, the Jordan Valley, East Jerusalem and Gaza.

The Gaza Strip is ruled by the Islamist Hamas faction which rejects a permanent peace settlement with Israel and refuses to recognize it. Politically and geographically, Gaza is split off from Abbas's West Bank territory.

An Israeli official said Molcho presented guiding principles that determine Israel's positions on the territorial issue.

Israel's approach to territorial compromise in the occupied West Bank includes the principal that most Israelis will be under Israeli sovereignty and obviously most Palestinians will be under Palestinian sovereignty, the official said.

He noted that Netanyahu had acknowledged, in a speech to the United States Congress, that not all Jewish settlements will be on our side of the border of a future Palestinian state.

We think it is very important that these talks continue. They are only at a preliminary stage, but they contain potential and obviously in less than a month it would have been illogical to talk about a breakthrough, he said.

But in many ways the talks are progressing better than expected and it would indeed be a pity to bring about a premature ending of this process.

Palestinians dispute this. The Israelis brought nothing new in these meetings, said one official familiar with the talks.

Peace negotiations foundered in late 2010 over a Palestinian demand that Israel suspend settlement building in the occupied West Bank, including East Jerusalem. (Reporting by Jihan Abdalla and Dan Williams. Writing by Douglas Hamilton; editing by Crispian Balmer)