The barrier cuts deep into the West Bank in places
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Two Israeli human rights groups have made their cases against the barrier Israel is building in the West Bank.
Avner Pinchuk, a lawyer for the group Hamoked, told the Supreme Court that Israel should not be constructing the barrier on Palestinian territory.
Government lawyer Michael Blass replied that the challenges to the barrier were too general and should be dismissed.
Israel says the barrier is necessary to keep suicide bombers out. Palestinians say it is an attempt to grab land.
Hamoked and another group, the Association for Civil Rights in Israel, want the barrier re-routed along the country's border with the West Bank.
"There's no doubting that Israel has the right to defend itself and build a barrier... but it is another thing to build it inside the occupied territories," Mr Pinchuk told the court.
Mr Blass said the government was considering altering the route of the barrier.
Israeli officials had said a day earlier that the route could be shortened by about 100km (62 miles), and plans to loop it around Jewish settlements are expected to be dropped.
The government is also reportedly considering painting sections of the barrier - mostly wire fencing, but also including concrete blocks - to make it less ugly.
"We are taking into consideration the aesthetic and other aspects of the fence and [painting] is one of the ideas," foreign ministry spokesman Jonathan Peled said on Monday.
A three-judge panel spent about two hours listening to arguments. They are expected to rule in the next several days, according to justice ministry sources cited by AFP.
The hearing comes two weeks before the International Court of Justice is due to consider if the barrier contravenes international law.
Palestinian response
As the hearing began, Yasser Abed Rabbo - a senior aide to Palestinian leader Yasser Arafat - said Palestinians were considering the unilateral declaration of a state in the West Bank and Gaza if Israel imposed new boundaries.
"We cannot wait for [Israeli Prime Minister Ariel] Sharon to put his plans into action. We must respond beforehand," he said.
Mr Abed Rabbo said Mr Arafat heard the suggestion at a meeting on Sunday but did not comment on it.
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Guide to the route and structure of the West Bank barrier

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Currently, most of the planned 720-km (480 miles) barrier is being constructed inside the West Bank, disrupting the lives of thousands of Palestinians.
If the court rules in favour of the petition, correspondents say a lengthy legal process could follow.
The petitions are not the first legal challenges to the barrier in the Israeli courts, but they are the most sweeping.
US concessions
Zalman Shoval, an adviser to Prime Minister Sharon, said the modifications would be presented to US officials due in Israel this week in the hope of winning their support.
"We want as much as possible to draw a line with the Americans," he said.
The BBC's Richard Miron in Jerusalem says the changes - even if they do happen - are unlikely to silence the opposition to the barrier.
Palestinian cabinet minister Jamal Shobaki said the Palestinian Authority would oppose the barrier if it infringes "even one centimetre" on lands Palestinians want for a future state.
Palestinian Prime Minister Ahmed Qurei has begun his first overseas tour since taking office and is seeking support for his strong opposition to the barrier.