Ejecting Arafat "would not be good for Israel", Ariel Sharon said in a Jerusalem Post interview on Friday.
"Our calculations for years have been that expelling him would not be good for Israel," Sharon told the English-language daily.
"Also, the likehood of expelling him without harming him is low, not only because of his security guards, but because he would be surrounded by a human chain of Palestinians."
The interview was conducted last Sunday, before the deadly attack on a US convoy in Gaza which led Israeli Foreign Minister Silvan Shalom to call for Arafat's expulsion.
But a high-ranking official in Sharon's office said Sharon's comments were not a turnaround.
"The prime minister has not changed his mind since the cabinet decision said Arafat as the main obstacle to peace should be removed, but did not specify by which means," the official said.
"The prime minister only meant to say that the conditions currently aren't ripe for Arafat's expulsion."
"As long as he (Arafat) is around, there is no chance for a settlement or any political process that can lead to peace"
Israeli prime minsiter
And Palestinian negotiator Saeb Erakat agreed Arafat still faced the threat of expulsion.
"Israel has not lifted its threat to transfer Arafat or even harm him physically. It is only waiting for a suitable time to do it," Erakat said.
Sharon made clear in the interview that although expelling Arafat in the current context would not be a good idea, he was not opposed to his expulsion in principle.
"As long as he is around, there is no chance for a settlement or any political process that can lead to peace," the Israeli premier said.
"He is the number one enemy of peace."
Challenged as to whether any progress at all was possible before Arafat was dead, Sharon said: "I didn't say dead but, in my opinion, as long as he is in control, the chance for progress is non-existent.
"An agreement with the Palestinians won't happen by itself. It requires a Palestinian prime minister who really would be strong ... Any prime minister now would have his hands tied by Arafat."
But Erakat returned the accusation, charging that "the obstacles to peace are the refusal by Israel to implement the roadmap, and its measures which destroy the peace process.
Arafat has been confined in Ram
Allah for two years
"The real enemies of peace in the region are the wall and settlement activity, as well as the aggression policies which have turned the West Bank and Gaza Strip into a big jail," he said.
Last month's threats by Israel to expel Arafat provoked outrage in the Palestinian territories and across the world.
Even the United States, Israel's closest ally, distanced itself from the Israeli position.
Meanwhile, Arafat, who is thought to be in poor health, has been confined by the Israelis in his Ram Allah compound for two years.