Prime Minister Benjamin Netanyahu is expected to tell the special U.S. Mideast envoy on Monday that Israel will not accept any limitations on its sovereignty over Jerusalem, and will allow settlers to continue to live in the West Bank.

Netanyahu traveled to London on Monday, where he will meet with the U.S. envoy, George Mitchell, in order to continue the discussion on the Obama administration's demands for confidence-building measures between Israel and the Arab world.

The U.S. is demanding that Israel freeze temporarily construction in the settlements, and is asking the Arab world to begin normalizing ties with Israel immediately.

Israeli government officials say a compromise being discussed could see Israel freeze building except for 2,500 units currently under construction. They spoke on condition of anonymity because details of
the talks between Israel and the U.S. are secret.

The number of Israeli settlers in the West Bank - home to some 2.5 million Palestinians - has more than doubled since the mid-1990s and now stands at around 300,000.

Netanyahu has compromised some since taking office in March, after winning an election on a hard-line platform.

But the settlement watchdog group Peace Now said Sunday that there had been no real slowdown in construction and that settlers could keep building indefinitely, using plans that have already been approved.

Netanyahu has meanwhile taken steps to improve life for Palestinians in the West Bank. With the territory enjoying a period of calm, some Israeli military checkpoints have been lifted, permits for importing raw materials are being granted, and there are other signs that life there is assuming a semblance of normalcy.

Netanyahu would like to resume direct negotiations with the Palestinian Authority following the United Nations General Assembly meeting in late September.

The Palestinians, however, have refused to renew talks until the Israelis
freeze settlement construction.

Veteran Palestinian negotiator Saeb Erekat, who has headed the Palestinian delegations at most negotiations with Israel since 1991, will be a guest of Haaretz Q&A on Tuesday, August 25, at 11 A.M. Israel time. Click here to send questions.

U.S. seeks role of 'active mediator' in Mideast talks

Meanwhile, a senior political source in Jerusalem told Haaretz Sunday that the U.S. has informed Israel that it is interested in assuming the role of "active mediator" during the talks, and "have a place at the negotiating table."

However, Netanyahu's foreign minister, Avigdor Lieberman, told reporters Sunday that he sees no chance of peace.

"In the 16 years since the Oslo Accords, we haven't managed to bring peace to the region, and I'm willing to bet that there won't be peace in another 16 years, either. Certainly not on the basis of the two-state solution," Lieberman said.

Sources close to the prime minister said they hope that if an understanding is reached regarding settlement construction, a tripartite meeting could be held with President Barack Obama and Palestinian Authority President Mahmoud Abbas at the United Nations.

PM to meet Mitchell

Netanyahu told the cabinet during its weekly session Sunday that his meeting with Mitchell in London is not expected to be the final one, and stressed that more meetings will be necessary before peace talks can begin. "The discussions with Mitchell are just the beginning of a series of talks and exchanges that have been going on intensively recently, and in good spirits," the prime minister said.

"There has been some progress, even though there is no absolute agreement. There is an attempt to minimize the degree of disagreement and discuss matters in a much more positive atmosphere. There is a wish to hold direct talks between us and the Palestinians, even though this depends on the understandings with the Americans and the Palestinians," Netanyahu told his cabinet colleagues.

The U.S. would like to be given guarantees by Israel that it will freeze settlement construction for at least a year, while Israel is offering a six-month hiatus. A political source in Jerusalem estimated that a compromise of 9-12 months will be reached for construction in the West Bank, but will not include East Jerusalem or most of the 2,500 housing units whose construction has already commenced.

Egyptian intelligence chief Omar Suleiman is due to visit Israel next week to meet with political leaders.

Netanyahu spoke with Jordan's King Abdullah Sunday afternoon, and greeted him for the Holy Month of Ramadan, which commenced on August 22. The King reiterated the significance of the Arab Peace Initiative and said that "the negotiations must be resumed as soon as possible in order to resolve the dispute."

The prime minister is traveling to London at a time when domestically the political scene is relatively calm and his coalition appears to be stable. In the Forum of Six, the group of senior ministers in which sensitive political-security issues are discussed, there is unusually vocal opposition, and some of the participants are even urging Netanyahu onward toward progress on the diplomatic front.

The "doves" in the forum comprise Defense Minister Ehud Barak and Dan Meridor. Barak is keen to see progress on a regional settlement in line with U.S. plans. Barak supports a temporary freeze of settlement construction, in return for steps toward normalization of ties with the Arab world. Meridor is also keen to see the tension in Israel-U.S. ties pass by, and for the resumption of negotiations on a peace plan for the Middle East.

The most "hawkish" member of the forum, Foreign Minister Avigdor Lieberman, is for the time being giving Netanyahu plenty of leeway. Speaking to reporters, Lieberman said that he does not believe it will be possible to reach a comprehensive peace with the Palestinians in the foreseeable future, but also said that he does not intend to undermine the prime minister's political efforts.

'Unrealistic goal'

"The establishment of a Palestinian state within two years is an unrealistic goal," Lieberman noted, refering to the vision of U.S. President Obama. "There are some who believe this is possible, and I do not want to interfere. I am ready to grant time so that there will be another effort to reach a Palestinian state, but I will not take on tasks that I do not believe in," he said.

However, in an address at Ariel before students there, Lieberman objected to the possibility that any sort of restriction be placed on Jews building or living in East Jerusalem. "I have said that there are 7,000 Arabs living in West Jerusalem. Can you imagine that the state would prevent the Arab citizens from finding apartments on Ben Yehuda Street, but to do so to Jews is permissible?" Lieberman asked.

"This double standard must not be accepted; we are not looking for confrontations or conflicts, but we will defend our national honor," he promised.

The other two hawks, Moshe Ya'alon and Benny Begin, are opposed to the resumption of negotiations, but both are keeping a relatively low profile as far as their public criticism of the prime minister is concerned.