According to the statement the two parties "agreed on the importance of restarting meaningful negotiations between Israelis and Palestinians and working toward a comprehensive peace, and that all sides need to take concrete steps toward peace."

However, Israel has resisted calls from Barack Obama, the US president, to freeze settlement building on occupied Palestinian land.

A freeze is key to the resumption of peace talks, and Israel's reluctance to budge on the issue has led to a rare rift in US-Israeli relations.

Iran 'deal'

Mitchell has been pressing Israel to halt construction as a confidence-building gesture to the Palestinians.

 Planning for Peace

 

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According to some media reports he was expected to offer Netanyahu a tougher US line on Iran's nuclear programme in return for Israel partially freezing settlement building.

Britain's The Guardian newspaper reported that the US, along with Britain and France, is planning to push the UN to include Iran's oil and gas industry in sanctions against the country, a move that could cripple its economy.

An Israeli delegation is due to meet Mitchell next week in the US to continue the talks.

Alastair Crooke, a Middle East analyst who has worked with Mitchell, told Al Jazeera: "I'm sure that Mitchell doesn't want to get stuck in this single issue for the next month, because the Americans have a deadline.

"They are really keen to get progress on the Palestinian issue before they leave Iraq in the interests of Israeli security."

After meeting Mitchell in London, Netanyahu, who is on a four-day European tour, flew to Berlin where he met Horst Koehler, the German president, ahead of talks with Angela Merkel, the German chancellor.

Abbas 'meeting'

 Abbas may meet Netanyahu on the sidelines of next month's UN meeting in New York [EPA]
Following the talks in London, Mark Regev, an Israeli spokesman, said an agreement with Washington which would allow peace talks to resume could come within weeks.

"The goal is to find common ground with the American administration ... on a framework that will allow the restarting of an energised peace process," he said.

"For that process to be meaningful, the Arab world has to be part of it."

Israeli media reports have suggested that Mahmoud Abbas, the Palestinian president, will meet Netanyahu on the sidelines of next month's meeting of the United Nations in New York.

In Jerusalem, a senior Palestinian official, said: "No one, neither from the Israelis nor from the United States contacted us for such a meeting but it could happen as a meeting but not as holding negotiations.

"What counts is to hold negotiations." 

Peace talks

Settlements in the West Bank, which Palestinians want for a future state, are home to 300,000 Israelis, and around 2.5million Palestinians.

Obama has said he opposes all settlement construction, while Abbas has staunchly refused to reopen peace talks until Netanyahu halts all settlement activity.

Netanyahu said his government is unwilling to negotiate on the status of Jerusalem [AFP]
A survey released on Wednesday showed freezing settlements would be an unpopular move among Jewish Israelis, with almost two-thirds of those questioned by the Maagar Mohot polling company saying they opposed the move.

Netanyahu has said he sees the emphasis on settlements as unfair, and insisted conflict in the Middle East is rooted in Arab enmity towards Israel.

Marwan Bishara, Al Jazeera's senior political analyst, said that a settlement agreement is indispensible to a peace deal because it prevents a "Palestinian independent contiguous state from emerging".

However, he said that there had been little progress in Wednesday's meeting.

"After nine months of telling Israel that they must stop the settlements, an entire government telling the American envoy in London today that they won't stop the settlement building within the settlements. That is a failure of a meeting."

On Tuesday, Netanyahu said that his government was unwilling to negotiate on the status of Jerusalem as a joint Israel-Palestinian capital.

Speaking in London at his meeting with Gordon Brown, the British prime minister, he had also said that any peace talks with the Palestinians would have to cover the issue of a "demilitarised Palestine", as well as illegal Israeli settlements in the West Bank.