SHARM EL SHEIK, Egypt — Israeli and Palestinian leaders agreed after a second round of peace talks started Tuesday to continue aiming for a deal within a year, but they failed to overcome a dispute over Israel's West Bank settlements that threatens to derail the U.S.-sponsored diplomacy.
The latest round began in the Red Sea resort town of Sharm el Sheik, where Secretary of State Hillary Clinton, Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas met twice.
"President Abbas and Prime Minister Netanyahu continue to agree that these negotiations, whose goal is to resolve all core issues, can be completed within a year," said U.S. Middle East envoy George Mitchell, a former Senate majority leader from Maine.
"Their common goal remains two states for two peoples, and they're committed to a solution to the conflict that resolves all issues," Mitchell said.
Peace talks had been stalled for nearly two years before President Barack Obama pressured both parties to resume negotiations. Now the expiration of Israel's 10-month moratorium on settlement construction, which runs out Sept. 26, could jeopardize the talks.
The Obama administration, which is withdrawing U.S. troops from Iraq and battling the Islamist Taliban movement in Afghanistan, wants to end the 62-year-old Israeli-Palestinian conflict in part to improve relations with the Muslim world. In the Middle East, skepticism remained high over the outcome, after years of failed talks and with flare-ups of violence.
"We've been witnessing these talks over the past 19 years," said Mohamed Sobieh, the Arab League deputy chief and official for Palestinian affairs. "We've always supported the negotiations, and we support them today. But we've previously walked out of Annapolis without any gains," he said, referring to talks in Maryland in 2007.
A resumption of Jewish settlement construction in the West Bank could be the undoing of this round, unless concessions are reached, Arab diplomats said.
Mitchell said the talks would continue Wednesday in Jerusalem, but he didn't say how they could overcome the settlement hurdle.
"We think it makes sense to extend the moratorium, given that the talks are moving in a constructive direction," Mitchell said, reiterating earlier comments by Obama and Clinton. "We know this is a politically sensitive issue in Israel. But we've also called on President Abbas to take steps that help encourage and facilitate this process."
The Palestinians insist on extending the freeze on construction of settlements in the West Bank, where they hope to found a Palestinian state once a permanent peace deal is struck.
"Choosing to continue with settlements in any form means destroying the negotiations," chief Palestinian negotiator Saeb Erekat said ahead of Tuesday's first meeting.
A member of Netanyahu's team on Tuesday reiterated the prime minister's earlier comments that there will be no extension of the settlement freeze and that they needed to reach a compromise either Tuesday or in Jerusalem.
This isn't the only sticking point, however. The two sides have yet to reach a deal on other core issues, such as the borders of the new Palestinian state; control of Jerusalem, which both sides claim as their capital; the right of generations of Palestinian refugees to return to homes that are now in Israel; and security measures.
The Israeli prime minister and the Palestinian leader are under pressure from their constituents. Right-wing parties in Netanyahu's government have demanded that he end the freeze on settlement building he imposed last December. Abbas has yet to reach a compromise with the militant Islamist movement Hamas, which seized control of the Gaza Strip in 2007 after winning elections there.
Abbas' own mandate to govern expired last year, his popularity in the West Bank is waning and critics charge that corruption is widespread in his party and government.
"We are under no illusions. We know there will be many obstacles; there will be hurdles that have to be crossed," Israeli government spokesman Mark Regev said. Nevertheless, he described the meetings between both parties as "good."
(Naggar is a McClatchy special correspondent. Hannah Allam contributed to this article.)MORE FROM MCCLATCHY
Follow Middle East developments at McClatchy's Middle East Diary