REUTERS - US envoy George Mitchell began his latest Middle East tour on Sunday and the Israeli prime minister was to head to Egypt as efforts to kickstart the peace process intensified ahead of the UN General Assembly.
The thorny issue of Israeli settlement construction on occupied Palestinian land was likely to top the agenda of talks both in Jerusalem and Cairo, with Washington pushing for, and Israel so far resisting, a total freeze.
For months, Washington has been trying to secure Israeli agreement to the settlement freeze while pressing Arab governments for reciprocal concessions to clear the way for a resumption of Israeli-Palestinian talks suspended in late December.
While Israel has agreed to a temporary halt, it has also authorised the construction of hundreds of new homes in advance of the moratorium in a move criticised by the European Union and the United States as well as the Palestinians.
The Palestinians have said they will not resume talks -- and Arab leaders have said they will not take steps to normalise relations with Israel -- without a complete halt to settlement construction.
The outcome of Mitchell's talks is likely to determine whether Israeli Prime Minister Benjamin Netanyahu and Palestinian president Mahmud Abbas meet for the first time later this month, on the sidelines of the UN General Assembly along with US President Barack Obama.
Mitchell was to hold talks with the Israeli president and foreign and defence ministers on Sunday, ahead of meetings with Netanyahu and Abbas early next week. It was not clear whether he would visit other countries in the region.
Ahead of his latest trip, the Palestinians reiterated that they will not back down from their demand for a complete settlement freeze and Netanyahu said Israelis were ready for talks, but were not "suckers."
"President Abbas... will also renew his demand that the United States intervene to completely halt settlement activity in the Palestinian territories," Palestinian chief negotiator Saeb Erakat said.
Netanyahu meanwhile told members of his right-wing Likud party last week: "There is one thing we are not willing to do -- we are not willing to delude ourselves, or in common terms, we are not suckers."
The hawkish Israeli premier was to head to Egypt on Sunday for talks with President Hosni Mubarak, the two leaders' second meeting since May.
In addition to the peace process, they were expected to discuss a proposed prisoner exchange that would see the release of Israeli soldier Gilad Shalit, seized by Gaza militants more than three years ago, in return for hundreds of Palestinian prisoners held in Israeli jails.
Egypt has been brokering the indirect talks on the prisoner exchange between Israel and the Islamist Hamas movement which controls Gaza. Germany has also joined the mediation efforts.
Israel and the Palestinians revived their peace talks in November 2007 after a nearly seven-year hiatus, but the negotiations made little progress and were suspended in December 2008 after the start of Israel's war in the Gaza Strip.
Both sides remain deeply divided on the most sensitive issues of their decades-old conflict -- final borders, the status of Jerusalem and the fate of Palestinian refugees and Israeli settlements.
A report in the left-leaning Haaretz daily on Sunday quoted unnamed Palestinian and EU sources as saying that the two sides will resume their talks in October on the basis that the establishment of a Palestinian state will be announced in two years.
The negotiations will first tackle determining the state's final borders -- a contentious issue that previous negotiations usually left for last -- based on the borders of June 4, 1967, the start of the Six Day War in which Israel captured the Palestinian territories, the report said.
Palestinian prime minister Salam Fayyad -- a former World Bank economist who is well regarded by the West -- has said he intends to strengthen government institutions in order to have a de facto state in two years.