"Keep in mind that we have agreed as Arabs and Palestinians to begin the proximity talks last March, and then the Israeli government decided to introduce 1,600 housing units on occupied land in East Jerusalem which sabotaged that effort.
"Now, I hope that once the Arab foreign ministers and the PLO executive committee meet next week that we can have an answer on whether to begin these talks."
Israeli government officials had no immediate reaction.
Indirect talks involve US officials meeting with one side at a time, and there are no negotiations planned where Israelis and Palestinians are at the same table.
"Ultimately, we want to see the parties in direct negotiations and working out all the difficult issues that they must," Clinton told reporters after meeting with Mohammad Sabah al-Salem al Sabah, Kuwait's foreign minister.
Warning Iran and Syria
On Thursday, Clinton warned Syria and Iran of taking actions that threaten the security of Israel, saying that Washington's commitment to its traditional ally is "unshakeable".
She said that the transfer of sophisticated weaponry to Lebanon's Hezbollah and the Palestinian Hamas movement by Syria, as well as Iran's nuclear ambitions, could destabilise the region.
"These threats to Israel's security are real, they are growing and they must be addressed," she said in a speech to the American Jewish Committee, a US-based advocacy group.
Relations between the US and Israel have been strained in recent months over settlement construction in the occupied West Bank and East Jerusalem, but Clinton's comments sought to reassure Israel that ties remain strong.
Clinton told the audience in Washington that Israel was currently "confronting some of the toughest challenges in her history", highlighting support for Hezbollah and Hamas from Syria and Iran.
"Transferring weapons to these terrorists, especially longer-range missiles, would pose a serious threat to the security of Israel," she said.
Scud missile claims
Israel has accused Syria of providing Hezbollah, with which it fought a month-long war in the summer of 2006, with Scud missiles, which would dramatically increase the group's ability to strike targets inside Israel.
Speaking after Clinton, Ehud Barak, the Israeli defence minister, said that his government was watching the situation in Lebanon and Iran very closely.
He said that the Syrian and Lebanese governments would be held responsible for any "balance-breaking weapons" used by Hezbollah.
Damascus has dismissed the Scud claims, but on Thursday, Hassan Nasrallah, the Hezbollah chief, refused to confirm or deny the allegations, saying they were an attempt to "intimidate" the group.
"Today it's Scuds, yesterday other kinds of rockets ... the aim is one, and that is to intimidate Lebanon, to intimidate Syria and to put pressure on Lebanon, Syria, the resistance movement and the Lebanese and Syrian people," he said in an interview with Kuwait's al-Rai television.
"... when you see all this American and Israeli noise, this means they want to use this noise to achieve political, psychological and certain security advantages without resorting to the step of war."
US officials have not confirmed that Hezbollah has received the Scuds, but have said that they are concerned about its growing arsenal of rockets and missiles from Syria.
|Clinton said the decision made by Assad, pictured, 'could mean war or peace' [EPA]
"President Assad [of Syria] is making decisions that could mean war or peace for the region," Clinton said.
"We know he's hearing from Iran, Hezbollah and Hamas. It is crucial that he also hear directly from us, so that the potential consequences of his actions are clear."
Washington is planning to return an ambassador to its mission in Damascus for the first time in five years, but Robert Ford, the nominee, is awaiting confirmation from the US senate.
On Iran, Clinton said that Washington was still open to engaging with Tehran over its disputed nuclear programme, but warned it faced "increased isolation and painful consequences" if it did not stop uranium enrichment
"At every turn, Iran has met our outstretched hand with a clenched fist," she said.
Tehran denies US claims that it is seeking to develop atomic weapons and says it should be allowed a peaceful civilian nuclear energy programme.
Indirect talks push
Clinton also said the US would continue to pursue an Israeli-Palestinian peace deal and was hoping to restart indirect talks between the two sides soon.
George Mitchell, the administration's special envoy to the Middle East, is due back in the region next week. His visit will follow a weekend meeting of Arab League diplomats at which US officials hope for an endorsement of the so-called proximity talks.
"Arab states ... have an interest in a stable and secure region and they should take specific steps that show Israelis, Palestinians and their own people that peace is possible and that there will be tangible benefits if it is achieved," Clinton said on Thursday.
"We would hope to see such concrete steps like the opening or reopening of commercial trade offices and interest sections, overflight rights, postal routes, and more people-to-people exchanges that build trust at the grassroots level."
She urged Arab states to give Mahmoud Abbas, the Palestinian president, greater moral support to negotiate with Israel and more financial backing to help Salam Fayyad, the prime minister, build Palestinian institutions.
Negotiations between the Palestinians and Israel have stalled since Israel launched its offensive in the Gaza Strip in December 2008.
Attempts to restart the process last month collapsed when Israel announced construction of a new housing project in occupied East Jerusalem, which Palestinians see as the future capital of any independent state.