He also visited Damascus for talks with Syria over its stalled negotiations with Israel.
"We are asking all parties to take meaningful steps," Mitchell said after four trips to the Middle East where he has met with the Israeli and Palestinian leaders as well as the leaders of other Arab countries.
"For the Israelis, that means a stop to settlements and other actions. For the Palestinians, that means continuing their efforts to take responsibility for security and end incitement," Mitchell said.
"We are also asking the Arab countries to take meaningful steps toward peace and normalisation," he said.
The envoy, a former mediator in the Northern Ireland conflict, said "hard work remains" but he is "encouraged by the progress" made in his discussions with the parties to revive the peace talks.
"The threat from Iran creates a circumstance unique in the region's history in establishing the possibility of a common interest"
Mitchell said he saw a "dramatic difference" in regional attitudes towards peace because of the commitment by Barack Obama, the US president, to finding a solution.
"The threat from Iran creates a circumstance unique in the region's history in establishing the possibility of a common interest between nations who for so long have been in an adversarial position," he added.
Mitchell was referring to concerns shared by Israel and Sunni Arab countries over Shia Muslim Iran's nuclear programme and growing power in the region.
The US envoy's remarks follow heavy Palestinian and Arab criticism of a major policy speech given by Binyamin Netanyahu, the Israeli prime minister, on Sunday.
After months of US pressure, Netanyahu endorsed a two-state solution to the conflict, but set a number of conditions, including Palestinian recognition of Israel as a Jewish state and full demilitarisation.
Mitchell said Washington did not see the goals of a demilitarised Palestinian state and a viable state as "irreconcilable".