Bezeq (TASE:

BEZQ

) has reached a settlement over its protracted dispute with the state over lands over which the phone company has claimed ownership, to the ire of the Israel Lands Administration.

The quarrel between the state and the state-owned company, over some 1,500 acres of prime real estate valued at billions of shekels, is one factor holding up the company's privatization.

Their accord is still subject to legal formalization and the approval of the accountant general.

Bezeq has agreed to return 11 plots of land totaling 500 acres to the state. The former director of the ILA, Avi Drexler, valued them at NIS 3 billion.

The phone company gets to keep the remaining 1,000 acres, for which it will be receiving long-term leases gratis.

The dispute broke out in 1999 after Drexler refused to sign Bezeq's prospectus to float shares on the stock market. Bezeq claimed rights to the land after having paid the ILA NIS 1.8 billion in today's terms for the land. But the ILA said that the payment did not apply to the 500 acres Bezeq is now returning to the state.