US envoy George Mitchell and Israeli Prime Minister Benjamin Netanyahu could not agree on a Jewish settlement freeze in talks yesterday but said negotiations were advancing.

"We are making progress," Mr Netanyahu told Israel army radio.

"I think we held a very important and productive talk and we will continue with the effort which, I believe, in the end will succeed in advancing peace and security between us and our Palestinian neighbours and the region in general."

After more than two hours of talks with Mr Netanyahu, Mr Mitchell told reporters: "We have made good progress".

Mr Mitchell said he looked forward to continuing discussions with Mr Netanyahu and moving towards a "comprehensive peace" envisioned by US President Barack Obama. He did not say when he would next meet the Israeli leader.

Mr Obama's demand, in line with a 2003 peace plan, to freeze Israeli settlement in the occupied West Bank and Arab East Jerusalem has met stiff resistance from Mr Netanyahu, the most serious rift in US-Israeli relations in a decade.

Neither Mr Mitchell nor Mr Netanyahu, who in his public comments has played down the dispute with Washington, men-tioned settlements in their remarks to reporters.

Palestinian President Mahmoud Abbas has said peace talks with Israel, suspended since late last year, could not resume unless Mr Netanyahu stopped all settlement activity.

Israeli Defence Minister Ehud Barak has publicly raised the possibility of a deal under which Israel would halt construction in settlements but complete projects under way in return for steps by Arab countries to normalise relations with Israel.

Arab moves towards com-mercial or diplomatic ties with Israel could help Mr Netanyahu persuade partners in his right-leaning coalition to accept a compromise on settlements. But there has been little indication from Arab countries in the region they would make such gestures without a complete settlement freeze.

At a meeting in the West Bank on Monday, Mr Mitchell informed Mr Abbas there was "still a gap between us and the Israelis on the settlements issue", a Palestinian official told Reuters.

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