Attempts to finalize a deal on a settlement freeze are entering the final stretch, although significant differences still exist between American and Israeli negotiators.

While those negotiators have reportedly reached an understanding on a nine-month freeze on new construction in the West Bank, both sides are struggling to agree on what should happen the day after the temporary freeze ends. The Israeli government would like to return to previous arrangements that allowed building within settlement blocs, while the Obama administration has refused to commit to any future deal, sources say.

Talks are expected to culminate in a statement from President Obama followed by a trilateral meeting of American, Israeli and Palestinian leaders on the sidelines of the United Nations General Assembly convening in late September. This meeting would re-launch the stalled Israeli-Palestinian peace talks, with the Obama administration playing an active role in mediating and bridging gaps between the sides.

“We believe that the only path to comprehensive peace begins with the two-state solution — that’s why we’ve concentrated our efforts on creating the context for the prompt resumption and early conclusion of negotiations between the parties,” a State Department official said.

An August 26 meeting in London between Israeli Prime Minister Benjamin Netanyahu and Obama’s special envoy, George Mitchell, did not resolve the outstanding issues regarding the settlement deal. Both sides agreed to continue discussions between Israeli and American teams in Washington in early September. In statements, both sides said that progress was made during the meeting.

Although details of the compromise being discussed were not formally confirmed, informed sources have provided a general outline of the deal: Israel is expected to agree to freeze all new building in the West Bank for nine months, the United States would not oppose completion of housing units already in active construction phases and there would be no expropriation of Palestinian land.

This deal would leave both sides far from their opening positions. Netanyahu, who vowed that there would be no freeze, would have to formally recognize that settlements cannot be expanded for the time being. Still, given the time frame of the freeze and the allowance to complete construction that is already under way, the freeze would have limited practical significance and would not be likely to endanger Netanyahu’s right-wing coalition.

Israelis, however, are concerned that once the nine-month freeze expires, Washington will demand an extension in order to support ongoing peace talks.

“Eventually, a settlement freeze which is indefinite and does not provide for normal life [in the Jewish settlements] is impossible,” warned Michael Oren, Israel’s ambassador to the United States, in an August 25 interview with the Forward.

The Obama administration — which had taken a hard line on settlements, with Secretary of State Hillary Rodham Clinton stating in May that America’s goal was “to see a stop to the settlements. Not some settlements, not outposts, not natural growth exceptions” — would also be required to compromise and accept that construction on the ground is going to continue.

But for the Obama administration, and for Mitchell — who, according to sources close to the talks, has been actively seeking a compromise that would end the dispute over the settlement issue — the deal is seen as providing sufficient ground for moving forward in the peace process. The administration, according to an official with a Jewish group who was briefed on the talks, intends to try to distance itself from the compromise by issuing a statement that would note that the United States “acknowledges” Israel’s decision to restrict building, thus falling short from openly endorsing the bargain.

Such a disclaimer would help the administration deal with possible criticism from the Arab side, which could see the administration’s willingness to compromise as caving in on the settlement issue.

“There will be a need for some creative ambiguity,” said Ziad Asali, president and founder of the American Task Force on Palestine. “They will have to find a way to satisfy the needs of the Palestinians.”

Still, Asali said he believes that the Palestinians are poised to resume talks with Israel and to move beyond the settlement issue. Palestinian President Mahmoud Abbas, he said, was empowered by the recent Fatah congress, which voted to reaffirm his leadership of the party, and can now move forward. “It was good for him, good for negotiations and good for his ability to make concessions,” Asali said of the support Abbas received from Fatah members.

Israeli and American negotiators have agreed to set aside the issue of building in Jerusalem, as long as no significant action is taken on the ground. “Jerusalem is not a settlement,” Netanyahu said during an August 25 meeting with British Prime Minister Gordon Brown in London. “We’ve been building in Jerusalem for 3,000 years.” But behind closed doors, according to a high-level source involved in the talks, Israel and the United States agreed to disagree. “It’s like, ‘Don’t ask, don’t tell,’” the source said.

The unofficial deal on Jerusalem will include an Israeli agreement not to evict Palestinians from their homes in East Jerusalem. American negotiators would also like to see Israel refrain from launching new construction projects in East Jerusalem but would be satisfied with a de facto halt, even if it were not accompanied by a formal Israeli statement.

The Obama administration’s timeline for moving Middle East peace talks forward gives Mitchell several more weeks to work out the details of the settlement freeze and to try to extract some public gestures from Arab states in return. Thus far, Mitchell has been successful in getting Arab states that previously had diplomatic offices in Israel to agree to reopen them, but he failed to persuade Saudi Arabia to allow Israeli civilian jetliners to fly over its territory.

Once peace talks begin, at the end of September, the Obama administration is said to intend to shift from the hands-off approach of the Bush administration to a more active American role. “They want a seat around the table,” said a foreign diplomat who is in close contact with American officials.

Israelis traditionally have feared active American participation in peace negotiations, but Ambassador Oren said that in case of an impasse, such involvement could be helpful.

“Both sides are interested in negotiating directly,” he said. “But if there will be a need for mediation to bridge the gaps, I believe both sides will welcome it.”