The freeze on construction in West Bank settlements is due to end in less than 24 hours, potentially creating a crisis that could halt direct negotiations with the Palestinian Authority, and there is still no solution in sight.
American negotiators have been holding intense discussions with the Israelis and the Palestinians, but the parties are still locked in their positions.
The Americans are focusing their pressure on trying to get Israel to continue the construction moratorium.
Palestinian President Mahmoud Abbas struck a hard line in a speech to the UN General Assembly yesterday, saying that Israel had to choose between settlements and peace.
He accused Israel of flouting UN resolutions and "relentlessly carrying out oppression, arrests and detentions, killings, destruction, demolition of homes, siege, settlement expansion, apartheid wall, violating and undermining the rights of our people and presence in their homeland without consequence."
He said Israel should be forced to meet its obligations, especially to stop construction in the West Bank and East Jerusalem, and to dismantle "the annexation apartheid wall."
"Despite the historic injustice that has been inflicted upon our people," Abbas said, "our wounded hands are still able to carry the olive branch from the rubble of the trees that the occupation uproots every day."
Palestinian sources said Abbas is waiting to see how the Israeli government handles the moratorium issue. If it announces that construction will resume, and holds ceremonies to mark the occasion, then direct talks will stop immediately, said the sources.
However, sources close to Defense Minister Ehud Barak said that the despite the Palestinians' outwardly belligerent stance, the Palestinians were willing to compromise.
Despite the Palestinians' stated refusal to compromise, chief Palestinian negotiator Saeb Erekat reamined in the United States yesterday for more discussions.
Abbas met with U.S. Secretary of State Hillary Clinton in New York on Friday, who asked him not to make good on his threat to end talks. He also met with U.S. special envoy George Mitchell yesterday.
Israel's chief negotiator Isaac Molho also is staying in New York for discussions with Mitchell and U.S. President Barack Obama's adviser Dennis Ross.
Sources close to Prime Minister Benjamin Netanyahu said that so far, all of Israel's proposals that would enable limited construction have been rejected by the Palestinians.
On Friday, Netanyahu met in Jerusalem with Quartet envoy Tony Blair, who flew over from New York to try to persuade Netanyahu to extend the freeze. Netanyahu told Blair he would not be able to get the cabinet to approve such a move.
Netanyahu called his advisers to his Caesarea home Friday to discuss possible solutions, and held another meeting at his Jerusalem residence last night.
The Palestinian newspaper Al Ayyam reported yesterday that the Americans told the Palestinian leadership that they understood its position regarding the freeze and that Obama had said so in his speech to the UN General Assembly last week.
Abbas' spokesman Nabil Abu Rudeineh said yesterday that the Palestinians were demanding that the freeze continue in its entirety, and that no interim solution would be acceptable. Arab League Secretary General Amr Moussa said the Palestinians would not be able to continue the talks if the freeze ended.
However, U.S. Assistant Secretary of State for Near Eastern Affairs Jeffrey Feltman told reporters, "We are urging Israel to extend the moratorium and we are also making clear to the Palestinians that we do not believe that it is in their interest to walk out of the talks."
Feltman told reporters the United States hoped that at the Arab League Summit on October 9, the Arab League would show support for the peace process, Abbas and the PLO, and increase economic assistance to the PA.
Congressmen calling for Pollard pardon
Meanwhile, four U.S. Congressmen are circulating a letter calling on Obama to pardon convicted spy Jonathan Pollard in a bid to further the peace process, the Jewish Telegraphic Agency reported.
Pollard has served 25 years of a life sentence for spying on the United States for Israel.
According to the JTA, the congressmen - Barney Frank of Massachusetts, Adolphus Tanner and Anthony Weiner of New York and Bill Pascrell of New Jersey's Eighth Congressional District - have signed the letter and are circulating it in Congress.
The letter says pardoning Pollard would show Obama's good will toward Israelis.
According to various recent reports, Pollard could be released in exchange for three more months of construction freeze.
Meanwhile, disturbances that started last week in East Jerusalem continued over the weekend. In the East Jerusalem neighborhood of Isawiyah, 1-year-old Hussam Abu-Sara died yesterday of an asthma attack. Relatives said it was caused by tear gas fired near his home.
In a related development, the Israel Navy plans to launch an investigation tomorrow into the death of a Gaza fisherman, Mohammad Manzur, after a navy vessel fired on his boat. The navy said the boat had entered a zone near the Gaza Strip the Israel Defense Forces has declared off limits.
Nir Hasson contributed to this report
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