The pullback is part of a "road map" to peace promoted by President Bush.
The deal would also call for an Israeli pullout from Bethlehem and a transfer of security control to the Palestinians.
Powell also called the militant group Hamas an "enemy of peace" during his troubleshooting mission to the Middle East.
After meeting with Foreign Minister Silvan Shalom Friday morning, Powell met with Prime Minister Ariel Sharon, followed by a brief discussion with Defense Minister Shaul Mofaz. He then travelled to Jericho to meet Palestinian Prime Minister Mahmoud Abbas, the Haaretz news agency said.
"The enemy of peace has been Hamas," Powell said at a joint press conference in Jerusalem with Sharon.