RAMALLAH, West Bank, Dec 12 (Reuters) - Neither Israeli nor Palestinian officials showed any enthusiasm on Sunday for a U.S. proposal of a return to indirect peace talks after the swift collapse of face-to-face negotiations.

U.S. Secretary of State Hillary Clinton, looking ahead to Washington's next steps in the troubled peace process, said in a speech on Friday the United States would push for the resolution of the core issues of the six-decade-old conflict.

But, on the eve of the return of U.S. Middle East envoy George Mitchell for a round of shuttle diplomacy, a Palestinian negotiator described Clinton's proposal as full of "loopholes" and Israel's defence chief said no new ground had been broken.

"I didn't find something new that will encourage us to see a new, more serious approach," the negotiator, Yasser Abed Rabbo, told Reuters.

The United States said last week it had abandoned efforts to persuade Israel to halt Jewish settlement building on the land where the Palestinians aim to found a state -- something the Palestinians had demanded before any more direct talks.

Instead, Clinton said, Washington would push both sides in the indirect talks to "lay out their positions on the core issues" with the aim of making real progress in the next few months towards a framework peace deal.

Palestinians want to focus on issues they see as vital, such as the borders of the state they want to found in the Gaza Strip -- territory now controlled by Hamas Islamists opposed to the U.S. peace effort -- and in the West Bank and East Jerusalem.

"There are so many loopholes in what (Clinton) said that will allow Israel to undermine everything," Abed Rabbo said, referring to Palestinian concerns over an agenda for talks.

"The Israelis will raise other issues, which means everything will be there and nothing will be there at the same time," he said. "We've seen this movie so many times before."

SOLUTION

Israeli Defence Minister Ehud Barak, commenting on Clinton's speech at a Brookings Institution event in Washington which he also addressed, told Israel Radio she had spoken of matters that were "self-evident".

Clinton, he said, made clear the United States could not impose a solution and peace depended on the willingness of the parties themselves to achieve it.

In a sign of division within the Israeli cabinet over one key issue -- the future of Jerusalem -- Prime Minister Benjamin Netanyahu distanced himself on Sunday from remarks Barak made in the United States on Friday on dividing the holy city.

"The defence minister presented his plan as head of the Labour Party. These things do not reflect government policy," Netanyahu told members of his right-wing Likud party, a source in the prime minister's bureau said.

Barak said a peace deal would likely leave "Western Jerusalem and the Jewish suburbs for us, the heavily populated Arab neighbourhoods for them (the Palestinians)" and include "an agreed upon solution in the 'Holy Basin'" of religious sites in the walled Old City.

Those lines were laid out in an initiative presented by former U.S. President Bill Clinton in talks 10 years ago.

Israel captured East Jerusalem in the 1967 Middle East war and considers all of Jerusalem its capital, a claim that is not recognised internationally. Mitchell is expected to bring details of the U.S. proposals to Abbas on Tuesday, Abbas's spokesman Nabil Abu Rdainah said.

An Arab League committee which deals with the peace process will then convene on Wednesday in Cairo. The Palestinians have yet to decide on their next step, Abu Rdainah said.