Tony Blair today unveiled the first fruits of his labours as Middle East peace envoy, outlining an economic deal between Israel and the Palestinians which he claimed would boost the West Bank.

The former Prime Minister said that Israel had agreed to remove trade and travel barriers for Palestinians in order to allow the territory to grow economically ahead of a final peace deal between the sides.

In particular, Mr Blair said Israel would take away four of its military checkpoints and cede increased security authority in and around the town of Jenin to make way for a business park.

Speaking at a press conference at his headquarters at the Colony Hotel, Jerusalem, the former Prime Minister said that it was vital to allow the Palestinians to develop their economic independence to free the West Bank of Israeli control and influence, while not compromising Israeli security at the same time.

The Israeli army had been reluctant to dismantle the checkpoints for fear of suicide bombers being able to infiltrate into Israel and commit attacks.

"This is a first step but it is a significant first step. It will make a marked improvement," Mr Blair said.

"For Palestinian statehood to be possible in the eyes of Palestinians, there must be hope that the occupation will, over time, be lifted. For Palestinian statehood to be possible in the eyes of Israelis, there must be hope, over time, that the security of Israel will be improved and not harmed by the way the Palestinians run their territory."

The former Prime Minister said Israel would scrap one checkpoint near the West Bank city of Hebron this week and remove or relocate three others, including one near Ramallah, which would be moved "once Israel determines the security situation so allows". Mr Blair added that the centrepiece of the economic development package would be an area in and around Jenin, which has a larger land mass than the whole of the Gaza Strip. The Palestinians will be given greater control over security there to make way for a number of economic and social projects.

The former Prime Minister's plan is considered vital to Western efforts to secure a future peace deal between the Israeli government and Mahmoud Abbas, the Palestinian President and head of the moderate Fatah party, who runs the West Bank.

However James Hider, The Times's Middle East correspondent, said that, although Mr Blair deserved "credit" for brokering this agreement, its success remained fraught with problems.

"The army are very reluctant to remove these checkpoints because they are the ones who will carry the can if the bombers get through," he said. "It would only take a couple of suicide bombers, and they would go back in."

He added, however, that the move reflected the increasing faith that Israel had in Mr Abbas's security forces, which have been trained and equipped by Jordan and the United States.

Mr Blair's announcement comes as Israel and Hamas, the Islamist militant group which runs the Gaza Strip, were said to be close to agreeing to a ceasefire to stop rocket attacks aimed at Israeli towns and bloody responses by the Jewish State's military against suspected militants.

According to the Jerusalem Post newspaper, Ehud Barak, the Defence Minister, is minded to accept a truce which had been brokered by Egyptian intelligence chief Omar Suleiman. Mr Suleiman met Mr Barak in Tel Aviv yesterday to outline details of the plan.

The newspaper adds that Israel's acceptance of any ceasefire would be conditional on Hamas eventually releasing the soldier Gilad Schalit, who was kidnapped by militants and has been held hostage for two years.

However, the fate of the delicate talks remained uncertain today after Israel announced that a 70-year-old woman was killed by a Qassam rocket in the town of Kibbutz Gvar'am in the Negev. The rocket is thought to have been fired by Islamic Jihad, Hamas's sister organisation, last night.

Hamas has ruled Gaza since seizing power from Fatah last summer and has been the subject of an Israeli-led blockade ever since, leaving its population poverty-stricken and isolated.

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