UK energy firm BG Group has confirmed it is in talks to agree a contract to supply Palestinian gas to Israel.
A deal would reportedly provide 10% of Israel's annual gas needs
BG discovered the Gaza Marine field, which is controlled by the Palestinian Authority, off the coast of the Gaza Strip in 2000.
Any deal would represent a landmark in Middle Eastern relations, but BG said it would first require agreement between both governments.
Israel has previously vowed never to buy gas from its neighbour.
"We have been in negotiation with Israel for many, many months," said a BG spokeswoman.
The gas field is located off the coast of the Gaza Strip
"Most importantly, we need a bilateral agreement between both governments to get the go-ahead on this. We are working on that."
BG, previously part of British Gas, is seeking a 15-year contract.
According to press reports, BG is hoping to sign a $4bn (£2bn) deal that would see the Palestinian Authority receive $1bn in royalties.
Under the proposals, BG would transport gas from the Gaza Marine field through an undersea pipeline to the Israeli port of Ashkelon.
The field contains one trillion cubic feet of gas, and could reportedly supply 10% of Israel's annual needs.
If the project gets the go-ahead it would be a major boost to the economies in the Palestinian controlled territories.
Ongoing violence, especially in the Gaza Strip, has seen much economic activity grind to a halt, leaving the territories heavily reliant upon financial aid from overseas.