Jerusalem ? The final route of Israel’s separation barrier around Jerusalem will encompass large areas claimed by the Palestinians, including their intended capital and the biggest Jewish settlement in the West Bank, Israeli officials confirmed Monday.

The route would also place Rachel’s Tomb, a holy site in the Palestinian town of Bethlehem, on the Israeli side of the barrier, while leaving a Palestinian refugee camp in Jerusalem encircled by a separate fence, the officials said.

Late Monday, Israeli and Palestinian Cabinet ministers agreed again on a handover of the West Bank town of Jericho to Palestinian security control. Earlier agreements fell through over details about roadblocks.

Israeli officials said the handover is set for Wednesday, to be followed two or three days later by Tulkarem, then Qalqiliya. Two other towns are to be transferred to Palestinian control as well — Bethlehem and Ramallah — but those were not agreed on at Monday’s meeting between Palestinian Interior Minister Nasser Yousef and Israeli Defense Minister Shaul Mofaz.

U.N. Secretary-General Kofi Annan, meanwhile, was optimistic about efforts to get peace talks back on track, saying “the positive developments here give us a chance to re-energize the process.”

Annan spoke after meeting with Palestinian leader Mahmoud Abbas in the West Bank city of Ramallah. Palestinian militants were to begin talks today in Cairo on formalizing an unofficial truce with Israel.

Israel began building the barrier in the West Bank two years ago, saying it was needed to keep out Palestinian attackers. Palestinians say the structure, which dips into the West Bank, is an attempt by Israel to impose a border without waiting for a peace deal.

The section around Jerusalem is especially sensitive. The Palestinians hope to establish their capital in east Jerusalem, a traditional Arab commercial, religious and social center. Israel, which captured east Jerusalem in the 1967 Mideast war, claims all the city as its capital.

Last year, the U.N. General Assembly passed a resolution against the barrier and the world court said in an advisory ruling that the barrier is illegal and must be torn down.

Annan also said the United Nations is establishing a register of damages to Palestinian property and claims against Israel resulting from the barrier construction.

Construction of the barrier is to be completed by year’s end.