However, a top PLO official said any separation had to be linked to an agreement on the creation of an independent Palestinian state, an idea that Israel officially opposes.
The comments came as Israeli security forces launched a crackdown on Hamas and Islamic Jihad, the groups which claimed responsibility for the bombing attack, which left 18 Israeli soldiers and one civilian dead.
Palestinians estimated that at least 50 people were detained during a roundup of suspected militants, including the spokesman for Islamic Jihad, Abdallah al-Shami, who activists say was seized in Gaza.
Appealing for separation between the two peoples, Environment Minister Yossi Sarid, a member of Israel's peace negotiating team with the Palestine Liberation Organization, called for the construction of a border fence between Israel and the West Bank.
Foreign Minister Shimon Peres voiced support for what he called a security barrier, telling Israel Radio it "definitely appeals to me." But he said the government still had to discuss the issue.
"Without separation, it is very doubtful that we can ever achieve good neighborly relations. Without separation, friction between us and the Palestinians will only grow," Sarid said.
Israel is building a fence between it and Palestinian-ruled Gaza, but only scattered army roadblocks are in place along the much-longer frontier between the West Bank and the Jewish state.
"The fence will be for security, of course," Sarid told army radio. "But it will also be a demographic fence to divide us from them."
Separation was the main theme of a televised address to the nation Monday night by Prime Minister Yitzhak Rabin in the aftermath of the bombing.
"We want to achieve a separation between you and us," Rabin said, calling it a means of protecting Israelis -- "98 percent of whom live within Israel proper" -- from guerrilla attack.
After Sunday's attack, the cabinet tightened a closure of the Gaza Strip and West Bank, preventing tens of thousands of Palestinians from reaching their jobs in Israel.
Nabil Shaath, a senior adviser to PLO Chairman Yasser Arafat, told reporters in Gaza separation would be acceptable only as part of the creation of a Palestinian state. "In which case, you can have separation if you want to, close borders when you want to -- with some mutuality and equality," Shaath said.
Separation now, he said, "really means closure, which means siege and prison to the Palestinians."
?President Bill Clinton on Tuesday ordered the freezing of U.S. assets belonging to 12 groups and 18 people suspected of terrorist activities. The groups covered by the order included Hamas, Islamic Jihad, Hezbollah, the Palestine Liberation Front and Kach, the militant Jewish group.
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