Israeli settler youths lift an Israeli flag in the newly-established wildcat outpost of Eviatar near the northern Palestinian city of Nablus in the occupied West Bank

Israel's government has reached a deal for Jewish settlers to vacate an illegal West Bank outpost, in an early stress test for the fragile coalition led by nationalist premier Naftali Bennett.

Dozens of settler families several weeks ago started to build the Eviatar wildcat settlement in defiance of both international and Israeli law, sparking fierce protests from Palestinians in nearby villages.

The Palestinians, who claim the land as their own, harassed the settlers by burning car tyres, sounding horns and pointing laser beams at them, leading to deadly clashes with Israeli security forces.

The hilltop area where the settlers have established their settlement of trailer homes and tents lies near Nablus in the West Bank, Palestinian territory occupied by Israel since 1967.

The dispute around the flashpoint site put an early strain on Bennett's diverse eight-party coalition, that includes his right-wing nationalist Yamina party as well as left-wing groups and Arab-Israeli lawmakers.

Jewish settlers agreed to leave the outpost following a deal with Israel's government under which they will depart within days -- but their mobile homes will remain and Israeli troops will establish a base in the area

The deal the government reached with the settlers late on Wednesday temporarily calms that dispute -- even as Palestinians and Israeli peace activists strongly rejected it.

Under the terms seen by AFP, the settlers will leave by 4:00 pm (1300 GMT) Friday, but their temporary homes will remain and the Israeli army will establish a presence in the area.

The defence ministry will then assess the area to possibly declare it as state land, where Israel allows settlers to build.

Should this happen, the military would then allow a community with a religious school to be built.

- 'Protest will continue' -

Israeli settlers in the wildcat outpost of Eviatar look on as Palestinian protestors flash laser beams towards them from the nearby village of Beita

Palestinians in the nearby village of Beita have categorically rejected any outcome other than a permanent evacuation of the settlers.

"This agreement was made between settlers and the army and we have nothing to do with it," Beita's deputy mayor Mussa Hamayel told AFP.

"Obviously, as long as any settler, or any soldier, remains on our land, clashes and protests will continue."

Anti-settlement group Peace Now also blasted the Eviatar arrangement.

"Politically, this agreement means that the new government doesn't want to confront even a small (albeit loud and forceful) minority," it said in a statement.

"Settlers can still do as they please."

While the wider dispute remains unresolved, the temporary solution did show that Bennett's coalition government is able to function despite the deep ideological differences between its members, analysts said.

Tamar Hermann, at the Israel Democracy Institute, told AFP the deal marked "a positive sign for the ability of the government to reach solutions".

"Nobody got up and left the coalition," she said.

"There are challenges all the time to the government, and in fact it's not crumbling, despite people saying it would after a week."

Palestinian protesters hold flags during a demonstration against the Israeli settlers' outpost of Eviatar

The Eviatar fracas had caused deep tensions within the coalition formed in mid-June.

While its premier Bennett once helped lead the settler movement, its critics hold key posts in his government.

When details of the agreement emerged this week, lawmaker Yair Golan of the dovish Meretz party told AFP that the government "can't give in to the settlers, because what they're doing is illegal".

Interior Minister Ayelet Shaked, a pro-settler member of Yamina, tweeted Wednesday that the Eviatar deal was "an important achievement" for Israel, while praising the settlers as "pioneers" devoted to Zionism.

- 'With tears' -

Palestinians in Beita hurl rocks by slingshot, while protesting against the Eviatar outpost

All Jewish settlements in the West Bank are considered illegal by most of the international community.

But settlement expansion has proliferated in recent years, with some 475,000 Jewish Israelis now living in the West Bank alongside roughly 2.8 million Palestinians.

Four Palestinians have been killed by Israeli troops in unrest over Eviatar, which lies deep in the West Bank, surrounded by Palestinian communities although a short distance from several hardline Jewish settlements.

Further pressures may emerge as the settlers agitate for a return to the site where, in a matter of weeks, they paved asphalt roads and connected some 50 trailers to electricity and plumbing knight.

In the days before the scheduled evacuation, Eviatar hummed with activity as teenagers used pickaxes to plant trees and children played on an inflatable slide.

The first Jewish residents arrived in the final weeks before hawkish former premier Benjamin Netanyahu, a long-standing settler supporter, was ousted after 12 straight years in office

Ayelet Schlissel, 36, who moved to Eviatar with her husband and five daughters, boasted that the community had "built a town" within two months.

Tzvi Succot, a leader of the outpost, said Thursday that he agreed "with tears" to leave but saw the agreement as a step towards victory.

"We believe that the government will honour the agreement and the Eviatar settlement will be built," he said.