According to an Aljazeera correspondent in Palestine on Tuesday, Israel cited security concerns for the refusal.
Palestinian negotiations minister Saib Uraiqat said Tel Aviv had agreed to remove the roadblocks inside Jericho and to hand over al-Awja and that he expected the handover to take place on Wednesday.
But Israeli Defence Minister Shaul Mofaz denied the report, saying: "This might be his (Uraiqat's) goal, but I believe that the army's position, which I approved, is the correct position," he said on Israel Army Radio.
He said both sides wanted to see that handover take place, but Israel did not want to take "too many risks when the Palestinians are not able to guarantee security".
The handover of five West Bank towns to the Palestinian Authority (PA) was agreed upon in principle by Sharon and Mahmud Abbas at a meeting last week.
The Palestinians consider Jericho a test case for future withdrawals, and want Israel to remove the roadblocks ringing the town.
Withdrawal or redeployment?
In the past, Israel temporarily pulled out of some West Bank towns, which in effect meant a short-term redeployment but left roadblocks in place for a future return.
These roadblocks curb freedom of movement for Plaestinians and the UN has recorded Israel as having more than 750 military roadblocks and checkpoints throughout Palestine, according to the International Solidarity Movement.
In the past Israel used to pullout
but leave roadblocks in place
A removal of roadblocks would be the clearest sign of change, but Israel is reluctant, citing security concerns.
The United States has also urged Israel to move quickly to improve the lives of ordinary Palestinians in order to boost support for Abbas.