In unusually candid remarks on Thursday, the deputy secretary of state told Egypt TV: "We're having a great deal of difficulty."
"[Palestinian] Prime Minister Quraya is not able or willing to make any tough stands on the question of security and on the other side, the Israelis are intent on not compromising either," Armitage said. "So we're at a bit of a stalemate."
The United States has been under fire for a lack of involvement in peace efforts despite threats from both sides that could sink the US-backed "road map" peace plan.
Critics said President George Bush's decision this week to omit the intractable conflict from his keynote State of the Union speech showed he was unwilling to play an active mediating role as he runs for reelection.
Armitage cited a trip to the region next week by two senior US officials as evidence "we continue to be fully engaged."
The US diplomat, who last year called the road map "very rutted and bumpy," reiterated his country's opposition to Israel building a barrier through the West Bank but acknowledged Washington's limited influence over Tel Aviv.
"Sometimes Israel changes, sort of, the direction of the wall and sometimes we have more difficult discussions," Armitage said in the interview, a transcript of which was released by the State Department.
"Prime Minister Quraya is not able or willing to make any tough stands on the question of security and on the other side, the Israelis are intent on not compromising either"
deputy secretary of state
Israel has threatened a unilateral separation along the line of the wall snaking through the West Bank that it says is to keep out bombers.
Palestinians call it a bid to annex or fragment occupied land and have said they could respond by demanding a single bi-national state.
Either move would likely kill the road map, which calls on the Palestinians to crack down on fighters who attack Israel and on Israel to freeze Jewish settlement expansion.
Assistant Secretary of State for Nonproliferation John Wolf, who last year was given a special assignment to shepherd the US road map peace plan, and deputy assistant secretary of state David Satterfield, will travel to the region over the next few days.
The trip is to "keep the ball in play" on the plan, according to a State Department official.