By Mark Heinrich
JERUSALEM, Feb 9 (Reuters) - Israel said on Wednesday it would soon readmit thousands of Palestinian workers and lift some West Bank roadblocks after agreeing a ceasefire that resuscitated hope for Middle East peacemaking.
The "Quartet" of United States, Russia, United Nations and European Union sponsoring a "road map" peace plan also said they would attend a Palestinian reconstruction conference set for March 1-2 in London.
Tuesday's meeting of Israeli and Palestinian leaders, while the first of its kind after four years of fighting, was only a modest first step since the truce they announced remains tenuous on the ground and core territorial disputes were sidestepped.
But dampening optimism, gunfire from an Israeli settlement killed a Palestinian on Wednesday, the first death by firing since the truce was declared on Tuesday at a summit in Egypt.
Witnesses said a 20-year-old Palestinian man died hours after he was shot from a Gaza Jewish settlement.
An Israeli military source said troops, suspecting an infiltration attempt, had fired warning shots when four Palestinians came within 50 metres of a fence near the Atzmona settlement. He said the Palestinians fled.
Militant groups said they were not bound by new President Mahmoud Abbas's truce pledge made as a basis for starting talks on statehood, but would continue to show restraint for now.
A Hamas militant in Gaza also died while making a bomb.
The Israeli army said 2,000 West Bank Palestinians and 1,500 Gazans had been authorised to enter Israel for work or trade, restoring an economic lifeline to the slum-ridden strip that has been largely severed because of violence since 2000.
An additional 500 Palestinians will be allowed to work in a Gaza border industrial zone, the army said.
PRISONERS, PULLBACK
A senior Israeli official said Abbas and Sharon would probably meet again in a week at Sharon's desert ranch.
Among gestures Sharon promised in return for the quiet Abbas engineered after he won a Jan. 9 election to replace Yasser Arafat are releases of Palestinian prisoners and a phased Israeli army pullback in the West Bank.
Abbas said on Wednesday Sharon had told him the Israeli army would remove major roadblocks in the course of a promised retreat from five West Bank cities in the next few weeks.
"We agreed that these withdrawals would be from areas and not just cities, meaning they will remove checkpoints ringing cities. We will then deploy our security forces there," he said.
Israeli officials confirmed such a deal, important to Palestinians cut off by roadblocks from work, school and family. Israel has deemed checkpoints vital to preventing attacks.
"The idea is for Palestinians to assume security control over these areas we vacate. In some areas where we don't think they will be strong enough to neutralise terrorists yet, we may hold on to our checkpoints but loosen the regime so people pass more freely," a senior Israeli official told Reuters.
Israel intends to free an initial 900 prisoners out of a total 8,000 -- the first 500 next week. But Abbas wants many more out, including militants serving long terms for killing Israelis, to increase his leverage over the armed factions.
Sharon has refused to free prisoners with "blood on their hands", but could come under heavier pressure to do so if the truce holds and U.S.-led mediators decide such a move is needed to help empower Abbas for talks on the "road map" peace plan.
Abbas declared that the ceasefire should lead soon to "road map" negotiations yielding a Palestinian state in the West Bank and Gaza, which Israel captured in the 1967 Middle East war.
Militants have ruled out a formal truce and threatened to eventually resume fighting without an Israeli commitment to total withdrawal and handover of East Jerusalem as Palestinians' capital. Israel has dismissed such demands in advance.
(Additional reporting by Nidal al-Mughrabi in Gaza, Diala Saadeh in Ramallah and Dan Williams in Jerusalem)