Israel will have to withdraw from further parts of the West Bank, acting Prime Minister Ehud Olmert has said.
Olmert is one of Sharon's closest political confidantes
In his first policy speech as interim leader, he said the main challenge ahead was to shape Israel's borders for good to ensure a Jewish majority.
It could not continue to control parts with a Palestinian majority, but would keep its main settlements, he said.
Mr Olmert is also acting as chair of Kadima, a party formed by PM Ariel Sharon before he suffered a stroke.
The party intends to run in Israeli general elections on 28 March on a platform of withdrawal from occupied territory.
Mr Olmert told a conference at Herzliya that Israel's withdrawal from the Gaza Strip and part of the West Bank last year was a turning point.
"In order to ensure the existence of a Jewish national home, we will not be able to continue ruling over the territories in which the majority of the Palestinian population lives," he said.
However, Mr Olmert said that Israel would keep security zones, the main settlement blocs, and places important to the Jewish people, such as Jerusalem.
"There can be no Jewish state without Jerusalem under Israeli sovereignty," he said.
He also hinted that Israel would act alone to set a border in the West Bank if talks failed.
In the speech, Mr Olmert urged the full implementation of a US-backed peace "road map".
He also spoke of the importance of the Palestinian poll on Wednesday.
Mr Olmert described it as a step towards their objective of reaching national independence, but said he hoped that Palestinians would not choose "extremists".
Palestinians reacted with calls on Israel "to abandon the ways of unilateralism".
"The Palestinian Authority is fully committed to peacemaking," negotiator Saeb Erekat added.
Settlement supporters expressed anger at the suggestion of a further withdrawal from parts of the West Bank.
"Olmert is the beginning of the end of the state of Israel," said right-wing lawmaker Aryeh Eldad.
Correspondents say Mr Olmert's comments were in line with Mr Sharon's statements before his stroke and subsequent coma earlier this month.
Mr Olmert has been Mr Sharon's closest political ally for most of the past decade and is seen as the politician most likely to continue his legacy.
Mr Olmert has spoken previously of the need for a pullback from the West Bank that would keep major settler blocs in the Jewish state.