US Middle East envoy George Mitchell and Israeli PM Benjamin Netanyahu say talks about reviving the regional peace process have made "good progress".

There was no mention of Israel agreeing to halt settlement construction, a key demand the US has made of its ally.

Mr Netanyahu has previously rejected such a freeze, saying "natural growth" of settlements must be allowed.

Mr Mitchell is one of several senior US officials in the region pushing for a comprehensive Middle East peace deal.

The Palestinians have said all Israeli settlement building on occupied territory must cease before talks can resume.

Relations soured

After a nearly three-hour meeting that was expected to focus on the settlements issue, the men spoke briefly to reporters. There was no mention of settlements.

"Good progress" was made, said Mr Mitchell, an experienced diplomat who negotiated the Northern Ireland peace agreement.
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The Israelis are also being circumspect. A senior official said that "settlements" (ie their continued construction in occupied territory) was only one element of the "whole kaleidoscope". They do not want to be drawn on the speculation about having the US say-so to finish building 2,000 apartments just inside the West Bank.

The informed view is that both sides are groping for a common ground that will allow the Americans to say they have forced a freeze in settlement building and for the Israelis to say that normal life continues.

Officials from the Palestinian Authority say they are frustrated. There was a vague hope, in some quarters, that the PA might have won some fresh political ground from Israel ahead of the long-delayed Fatah conference, which is due to start a week today.

All that we do know is that George Mitchell is due back, for more talks, some time next month. And August - as one official hoping to sound optimistic, put it - "is only days away".

"We look forward to continuing our discussions to reach a point that we can all move forward to reach a comprehensive peace," he said.

Mr Netanyahu said they were making progress "toward achieving the understanding that will enable us to continue and complete the peace process established between us and Palestinian neighbours and the countries in the entire region".

Relations between the two allies have soured in recent weeks over US demands that the settlement construction halt.

The US is making a major diplomatic push in pursuit of a comprehensive Middle East peace deal.

Defence Secretary Robert Gates is in Iraq after stops in Israel and Jordan and President Barack Obama's National Security Adviser James Jones and veteran diplomat Dennis Ross are also to arrive in the region to join the effort.

'Roadmap obligations'

In earlier meetings in the region, Mr Mitchell urged all countries to make the difficult choices needed for peace.

"That includes between Israel and Palestinians, between Syrians and Israelis, between Israel and Lebanon and the normalisation of relations between Israel and all of the countries in the region," Mr Mitchell said late on Monday after a meeting with Palestinian Authority President Mahmoud Abbas.

Earlier, he told Israeli President Shimon Peres that Israel could improve the climate by "dealing with difficult issues like settlements and outposts".

All settlements are illegal under international law, though Israel disputes this. Israel has settled more than 450,000 Jews in the occupied West Bank, including East Jerusalem.

Although the Israelis are reluctant to agree to demands that they stop settlement building, there may be a compromise brewing whereby the Israelis agree to finish the building of 2,000 new apartments a short distance inside the West Bank, but freeze all other construction, says the BBC's Tim Franks in Jerusalem.

The Palestinians have previously said nothing short of a complete and immediate end to settlement building will do.

Palestinian negotiator Saeb Erakat accused Israel of failing "to fulfill any of its roadmap obligations, including a settlement freeze, the reopening of Palestinian institutions in East Jerusalem, removal of outposts, the release of Palestinian prisoners", reports AFP news agency.

He was speaking after the meeting between Mr Mitchell and Mr Abbas in the West Bank town of Ramallah late on Monday.

Mr Mitchell said the Palestinians should "take action against incitement and... refrain from any words or deeds that may make it more difficult to move quickly toward successful negotiations".

Earlier on Monday Mr Mitchell also met President Hosni Mubarak in Cairo.

The Egyptians are currently brokering reconciliation talks between the deeply divided Palestinian factions of Fatah and Hamas.

Despite several rounds of talks, the two Palestinian factions are still at odds on the most sensitive issues, such as the shape of a future unity government, the remit of the joint security force and the system that would be implemented for any upcoming elections.

Iran options

Despite the US concern for movement on an Israeli-Palestinian peace agreement, Israel says its number one priority remains Iran's nuclear programme.

Israeli officials have said military action remains an option on Iran.

Iran denies claims it wants to build nuclear weapons, saying it is enriching uranium for a civilian energy programme.

In Israel on Monday, US Defence Secretary Robert Gates said recent US overtures to Tehran were "not open-ended".

He was referring to a statement Mr Obama made in January, shortly after taking office, when he said if Iran and countries like it were "willing to unclench their fists, they will find an extended hand from us".