"Despite their differences, both the government of Israel and the Palestinian Authority have asked us to continue these discussions in an effort to establish the conditions under which they can continue direct negotiations," Mitchell told reporters after meeting Egyptian President Hosni Mubarak.

"They both want to continue these negotiations, they do not want to stop the talks," he added.

The Middle East envoy, who has been touring the region since Tuesday, flew to Amman from Cairo on Sunday, in his effort to rescue the faltering peace process.

The US-backed negotiations, which began on September 2, have been on the brink of collapse since Israel refused to extend a 10-month moratorium on new settler homes in the West Bank that expired a week ago.

The Palestine Liberation Organisation, an umbrella group that includes most Palestinian factions except the militant Hamas, on Saturday urged president Mahmud Abbas to withdraw from the talks over continued Israeli settlement construction.

"The resumption of negotiations requires tangible steps from Israel and the international community beginning with a halt of settlement activity," the PLO said.

Israeli Prime Minister Benjamin Netanyahu reacted by urging Abbas "to continue the peace talks without a break with the aim of reaching a historic accord in a year."

In Amman, Abbas met Jordanian King Abdullah II on Sunday, and insisted that Israel should freeze settlement building before he returns to peace talks.

"Of course we will not stop contacts with the Americans," a palace statement quoted Abbas as saying following the talks.

"We will continue to communicate with them to find a solution to the Israeli settlements problem, which should stop before we go back to the negotiations."

Abbas has said he would not make a final decision on the talks until after meeting Arab foreign ministers in Libya on Friday, giving US mediators another few days to try to strike a compromise.

"Israel refused to renew a freeze on the settlement building, and we could not continue the talks. So now, there is a problem and we will follow up on through Arab coordination," he added in Jordan.

Seeking to break the deadlock, Mitchell met Netanyahu in Jerusalem and Abbas in Ramallah on Friday, before flying to Qatar, Egypt and Jordan, where he briefed the king on US peace efforts, the palace said.

"We are pursuing this effort continuing discussions today, in the past several days and in the next several days with the two parties, with other leaders in the region, in Europe and elsewhere, including the members of the (Mideast) Quartet," Mitchell said in Cairo.

Egyptian Foreign Minister Ahmed Abul Gheit underlined his government's support for "the Palestinian position, which requires favourable conditions in order to pursue direct negotiations."

"At this precise moment, the conditions are not conducive," he said, adding: "We have asked the United States to continue their efforts."

In Jordan, Abdullah told Mitchell that the United States played a key role in pushing for peace, the official Petra news agency reported.

"The US has a pivotal role to achieve peace and set a common ground to press ahead with negotiations and resolve the Palestinian-Israeli conflict based on the two-state solution, an independent Palestinian state living in peace and security alongside Israel," Abdullah said.

The Palestinians have long viewed the presence of some 500,000 Israelis in more than 120 settlements scattered across the West Bank and annexed east Jerusalem as a major obstacle to the establishment of a viable state.

The international community considers the settlements to be illegal.

Highlighting another challenge facing the faltering peace talks, an Israeli border guard on Sunday killed a Palestinian labourer who was trying to cross from the West Bank into east Jerusalem.

The Palestinians have demanded east Jerusalem -- occupied by Israel since 1967 -- as the capital of their future state. Alongside Jewish settlements, the city's future status remains one of the most intractable issues in the Middle East conflict.

earlier related report
Obama administration faces steep price to save talks
Washington (AFP) Oct 2, 2010 - Caught again on the horns of the dilemma over Jewish settlements, the Obama administration may have to pay a steep price to rescue the fledgling Israeli-Palestinian peace negotiations.

Though it was only a month ago when it launched the first direct talks in 20 months, US President Barack Obama's administration already faces the prospect of a breakdown and terribly long odds for their success, analysts said.

Nonetheless, the analysts believe the administration can rescue the talks from the current crisis over settlements, with one saying the price will be exceptionally high.

The Obama's administration early last year had insisted on a full freeze to the settlements, including in east Jerusalem, before backing down in November when it embraced Israel's 10-month building moratorium in the West Bank.

During the moratorium, it was able to coax the Palestinians into indirect peace talks in May and direct talks in September, but, with the moratorium's expiration last weekend, the Palestinians now threaten to bolt the talks.

The administration argues that settlements, ultimately, can only be resolved through negotiations, because they must be dealt with in talks over the borders of a future Palestinian state and over security provisions for Israel.

It believed that the sooner talks got underway, the sooner they would tackle the settlement problem, including that of the moratorium.

"They took on this project in August in order to pre-empt the crisis they now find themselves in," said Aaron David Miller, a former Middle East peace negotiator in both Democratic and Republican administrations.

"And had they not taken it on, they would have had no leverage at all to try to get (Benjamin) Netanyahu and (Mahmud) Abbas over the problem of the moratorium," Miller told AFP, referring to the Israeli and Palestinian leaders.

"But having taken it on they hyped, I think, probably unnecessarily the relaunch of the negotiation in Washington. They now need to pay or are considering paying both parties for simply sitting down at the table," he said.

"If the price is this steep this early on, you can only imagine what will be required when they truly run into an impasse on the substance," said Miller, now an analyst with the Woodrow Wilson International Center for Scholars.

David Makovsky, a US analyst with ties to Obama team member Dennis Ross, posted an online article outlining inducements Obama purportedly offered Prime Minister Netanyahu in return for a two-month extension of the moratorium.

The White House has denied there was such a letter. Makovsky wrote that there was only a draft letter that Netanyahu was minded not to accept.

Makovsky said the letter pledged Washington would not ask Israel for another extension of the moratorium after 60 days and would veto any UN Security Council resolution on the peace talks for a one-year negotiating period.

In addition to covering peace and security matters, the assurances supposedly also covered weapons deliveries in the event of an Israeli deal with the Palestinians.

"Now the logic of (the administration's) position, I'm assuming, is that they will make quick progress in the next two months on the issues of territory and security," said Miller.

But Miller warned that if no major decisions are made on territory, borders and security within that time, the settlements will come back to haunt the administration, because Israel will be exempted from freezing them.

"I think (the administration) will find a way to work it out, it's just that they will have to pay for it, they will have to pay both sides," Miller said.

Marina Ottaway, an analyst with the Carnegie Endowment for International Peace, said that despite their low odds for success, the US-brokered negotiations must continue as the window for a two-state solution narrows.

And Obama also had to demand a halt to the settlements, even if, in a sense, "he has painted itself into a corner" over them, she told AFP.

"It was a losing proposition no matter what because not insisting on the settlement moratorium... would also have sent a signal to the Israelis that we're not serious about what's going on," she said.

Nonetheless, she said she suspects "they will find some sort of compromise language" to keep the talks going.

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