JERUSALEM, AP -Israel and the Palestinians were moving toward agreement on new security arrangements for Gaza”s border with Egypt, officials from both sides said Saturday, a deal that could allow Palestinian residents of the coastal strip relatively free movement for the first time.

The signs of progress came days before Israeli Prime Minister Ariel Sharon and Palestinian leader Mahmoud Abbas were to meet for the first time since Israel”s withdrawal from the Gaza Strip.

Also Saturday, the Palestinians broke ground on their first major development project in Gaza since the withdrawal — a $100 million complex that will provide housing for 25,000 people. The development, funded by the United Arab Emirates, was being built on the former Jewish settlement of Morag and was expected to take two years to complete.

A border deal would mark a significant breakthrough. Before completing its withdrawal last month, Israel closed the Rafah border terminal, Gaza”s main gateway to the outside world. The Palestinians say reopening the border is vital for Gaza”s devastated economy.

A deal to reopen the terminal will have to address the security concerns of Israel, which fears militants and weapons will reach Gaza more easily without the Israeli inspectors who once operated Rafah.

This concern was underscored in the days following the Israeli withdrawal. Border control broke down and thousands of Palestinians crossed freely in and out of Egypt without any security checks. With few exceptions, Palestinians have been barred from traveling to Egypt since order was restored.

Israeli Foreign Minister Silvan Shalom also said Saturday that Egypt is not doing enough to stop the flow of weapons into Gaza and that anti-tank rockets and shoulder-held missiles have reached the area.

&#34There is no doubt that the situation has improved, compared to the first days, but we still see a relatively free movement (of weapons),&#34 he told Israel Radio.

Egypt and Israel negotiated a security arrangement, including the deployment of 750 Egyptian border guards, ahead of the Gaza pullout.

Under a compromise proposal brokered by international mediator James Wolfensohn, Palestinian travelers and exports leaving Gaza would go through Rafah, with foreign inspectors supervising the traffic.

Incoming goods would be rerouted through Kerem Shalom, an Israeli-run inspection point in the area where Gaza, Egypt and Israel converge.

Wolfensohn told Abbas on Friday that Israel had agreed in principle to the presence of European inspectors, said a Palestinian official who participated in the talks. The official spoke on condition of anonymity because he wasn”t authorized to talk to the media.

A senior Israeli official said Israel is open to the idea of foreign monitors on the border and the Wolfensohn plan is &#34one of the options&#34 under consideration. Israel wants to have access to the terminal”s computers to monitor who is entering and leaving Gaza, the official said, declining to be identified because of government rules.

Abbas and Sharon were expected to meet Tuesday, but the date was uncertain. Both sides have said it would be better not to hold the meeting at all than to have it fail.

Israel wants Abbas to take tougher action against militant groups. Abbas has refused to use force to disarm the groups, preferring instead to negotiate with them, though he recently imposed a ban on public displays of weapons in Gaza. Militants repeatedly have flouted the ban.

&#34We call on our brothers who started the calm with us, who agreed to end military parades and displays, to start a new era and open a new page, the page of construction, development and investment,&#34 Abbas said during the groundbreaking ceremony for the Gaza housing project.

Abbas stressed he wanted measurable progress in a meeting with Sharon.

&#34We don”t want a public relations summit. We don”t want a failed summit. We want a meaningful summit with results,&#34 Abbas said Saturday.

In a possible concession, Israeli security officials decided over the weekend that they would not object to a prisoner release approved by the government, officials said Saturday.

The officials also recommended that Palestinian security forces be permitted to obtain armored vehicles and more ammunition to help bolster efforts to control militants. Israel”s security chiefs, however, object to allowing the Palestinians to purchase more guns, the officials said.

The issues are likely to be discussed during an Israeli Cabinet meeting Sunday.