Prime Minister Benjamin Netanyahu on Sunday refused to bow to Palestinian demands to continue a freeze on settlement building in the West Bank - but hinted at a compromise that would see construction resume at a slower pace.
Israel's commitment to settlement building threatens to paralyze new peace talks, which kicked off in Washington early this month.
Speaking at the weekly cabinet meeting in Jerusalem, Netanyahu said:
"I don't know if there will be a comprehensive freeze," he said. "But I also don't know if it is necessary to construct all of the 20,000 housing units waiting to be built. In any case, between zero and one there are a lot of possibilities."
Israel agreed late last year to suspend construction in the West Bank, excluding East Jerusalem, for 10 months. The freeze is now due to expire on September 30 after Israel agreed to a four-day extension.
Palestinian President Mahmoud Abbas has said repeatedly he will walk out of talks if the moratorium does not continue throughout negotiations, scheduled to last a year.
Equally dangerous to negotiations is a new dispute over timetables. Israel is pushing for an initial focus on security and a formal end to the decades-old conflict through mutual recognition, but the Palestinians have demanded a debate from the outset on refugees, borders and the status of Jerusalem, which both sides claim as their capital.
On Sunday Netanyahu gave no sign of softening the Israeli position, insisting that recognition of Israel as a Jewish state was "fundamental" to Middle East Peace. Just as Israel and he personally had recognized the rights of Palestinians, Israel would demand recognition as the national homeland of the Jewish people, he told ministers.
"This is the basis for peace," he said.
Palestinian refusal to acknowledge Israel's Jewish status was obstructing progress toward a two-state solution, Netanyahu said.
"Sadly, I have not heard the Palestinians talk of two states for two nations. They speak of two states - but not two nations."
The prime minister told cabinet colleagues that he had telephoned Palestinian President Mahmoud Abbas over the weekend to congratulate him on Eid al-Fitr, a Muslim festival that ends the annual month-long Ramadan fast.
"If we can get over the issue of mutual recognition, I hope that next year we will be able to congratulate one another on achieving an agreement for peace," Netanyahu said.
The two leaders are due to meet on Tuesday for a second round of negotiations in the Egyptian resort of Sharm- el-Sheikh, with another meeting set for the following day in Jerusalem.
The United States, which is mediating the talks, proposed Wednesday's additional summit on Israeli soil in a push to maintain momentum, fearing that bickering could hamstring the talks from the outset.
On Friday U.S. President Barack Obama sought to heal tensions by playing down the significance of the September 26 deadline, urging Abbas to appreciate Netanyahu's difficulty in securing even a temporary freeze.
"A major bone of contention during the course of this month is going to be the potential lapse of the settlement moratorium," Obama said.
"The irony is, is that when Prime Minister Netanyahu put the moratorium in place, the Palestinians were very skeptical. It turns out, to Prime Minister Netanyahu's credit and to the Israeli government's credit, the settlement moratorium has actually been significant. It has significantly reduced settlement construction in the region."
Obama said he realized that some members of Netanyahu's government wanted the freeze to end and that he had told Abbas: "You've got to show the Israeli public that you are serious and constructive in these talks so that the politics for Prime Minister Netanyahu - if he were to extend the settlements moratorium - would be a little bit easier."
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