Meeting in Egypt for their second peace summit in two weeks, Israeli and Palestinian leaders began discussing for the first time Tuesday some of the issues at the heart of a possible treaty, even as a dispute over settlement expansion clouds the future of the talks.

Both Israeli and US officials sounded upbeat about the atmosphere at the talks in the Red Sea resort of Sharm el-Sheikh.

US peace envoy George Mitchell, who accompanied Secretary of State Hillary Clinton to the summit, said the discussions of those core issues were "serious, detailed, and extensive."

A spokesman for Prime Minister Benjamin Netanyahu said the talks covered "substantive issues'' and were "good."

Palestinians didn’t comment on the talks in the initial hours after the meeting – a possible sign of unease with the talks. Their silence also could be due to an American request to keep quiet about the summit's details.

Palestinian Authority President Mahmoud Abbas is threatening to abandon the talks if Israel does not extend a temporary freeze on West Bank settlement building.

The summit moves on Wednesday to Jerusalem where Mr. Abbas and Mr. Netanyahu are scheduled to meet again.

Although it is often hard to make progress negotiating in the public eye, one Western diplomat says the frequent summits could help breathe life into the peace process.

"They feel they've got to give it some momentum," says the diplomat, who requested to remain anonymous. "It’s a way of getting them past the settlement freeze."

Both Israelis and Palestinians are skeptical about whether the sides have enough goodwill and whether the US is serious enough to push for an agreement within the one-year deadline agreed upon.

The first test will be defusing the dispute over Israeli settlement expansion. Netanyahu has said he'll resume settlement building after the Sept. 26 expiration of Israel's temporary moratorium on construction.

Egyptian Foreign Minister Ahmed Aboul Gheit told reporters that negotiators should agree on a border first to avoid disputes on settlement expansion. He said that the sides should also discuss security, which Israel wants to tackle first.

The sides are hoping to reach a "framework" agreement that will include a compromise on "core" issues like borders, water rights, Palestinian refugees, security, and control over Jerusalem.

Though he wasn’t at the talks, Palestinian government spokesperson Ghassan Khatib says progress in the talks would not prompt the Palestinians to soften their demand for a complete cessation of settlement building.

"Nothing can compensate the need for cessation of settlement activities. Everything else is meaningless," he says. "No one is under the illusion we are going to reach a settlement tomorrow. It's going to take time. If Israel uses the time to create facts on the ground, then it will preempt a future state."