Prime Minister Benjamin Netanyahu and the top U.S. Mideast envoy said they made progress Tuesday on their dispute over West Bank settlements, but offered no sign of a breakthrough at a meeting in Jerusalem.

President Barack Obama's envoy, George Mitchell, has been pressing Israel to halt all construction in settlements built on captured land claimed by the Palestinians, stressing that such a gesture would improve prospects for a peace deal.

But Netanyahu says limited construction must be permitted to allow "natural growth" in the existing settler population.

Netanyahu and Mitchell both reported "progress" after their meeting, but gave no details on how close they were to resolving the disagreement.

"I think we're making progress toward achieving an understanding that would enable us to continue, and in fact complete, a peace process that would be established between us and our Palestinian neighbors and ultimately the entire region," Netanyahu said.

The settlement issue has given rise to the worst public tensions between Israel and its closest ally in nearly two decades.

Seeking to calm Israeli nerves, Mitchell stressed Tuesday that Israel and the U.S. were "friends and allies." But he offered no hint that an agreement was near and said only "good progress" was made.

The premier also told Mitchell that Israel was doing all it could to advance the peace process with the Palestinians. Mitchell said that there are understandings that have been reached that could aid in advancing the process.

Meanwhile, the Arab language daily newspaper Al-Hayyat reported on Tuesday that a senior aide to Mitchell told Palestinian President Mahmoud Abbas that final status negotiations between Israel and the Palestinians will be limited to a timeframe of a year-and-a-half.

According to the report, Mitchell is trying to coax Israel into freezing settlement construction in order to restart peace negotiations with the Palestinians.

Aides to Abbas told the newspaper that the Palestinian leader is insisting on a freeze in Israeli settlements as a condition for the renewal of peace talks with Jerusalem.

Mitchell told Abbas on Monday he was still working on a deal with Israel to halt West Bank settlement activity so peace talks can resume.

"We are discussing the issue but we didn't conclude an agreement yet with the Israelis," a senior Palestinian official quoted Mitchell as saying over a working dinner with Abbas.

Obama's envoy has held top-level talks in Britain, the United Arab Emirates, Syria, Egypt, and Israel over the past week. The official reported him as telling Abbas that everyone involved must do more over the coming weeks.

Mitchell told reporters Washington was doing "everything we can to achieve a comprehensive peace ... between Israelis and Palestinians, between Syria and the Israelis, between Israel and Lebanon and the normalization of relations between Israel and all of the countries in the region".

The envoy said Obama wanted "an early return to meaningful negotiations and a prompt resolution of those negotiations", and "that means that everyone must take steps, some of them difficult, some of them controversial to create the context ..."

Mitchell told Abbas that Obama was committed to the peace process, and was "determined and consistent".

Obama's demand for a freeze of Israeli settlements is in accordance with a 2003 U.S.-backed peace "road map." It has met stiff resistance from Netanyahu, causing the most serious rift in U.S.-Israeli ties in a decade. In talks with Israel leaders on Sunday and Monday, Mitchell emphasized American friendship and the U.S. commitment to Israel's security.

He informed Abbas there was "still a gap between us and the Israelis on the settlements issue," the Palestinian official told Reuters.

Abbas refuses to resume peace talks frozen for the last six months until Netanyahu agrees to freeze all settlement activity in the West Bank and East Jerusalem.

Chief Palestinian negotiator Saeb Erekat issued a statement after Monday's talks saying "the only way to return credibility to the peace process" is for everyone to honor his commitments.

Erekat said the "Quartet" of Middle East peace mediators - made up of the United States, Russia, the European Union and the United Nations - must "play a constructive role in holding the parties accountable for honoring their commitments."

"The success of the peace process will depend on the effective ability of the Quartet to oversee and report on ... both sides in carrying out their obligations," he said.

"Israel shows no intention of stopping its illegal settlement activity, particularly in and around occupied East Jerusalem," Erekat said.

Mitchell earlier praised Israel for easing Palestinian movement in the West Bank by removing some of its checkpoints. But Erekat said moving a "handful" of roadblocks changed little.

"There are still currently more than 600 obstacles to movement and access in the West Bank, including East Jerusalem. These obstacles serve no security purpose. In fact, 80 percent of them serve only to divide Palestinians from Palestinians."