The United States called Israeli settlement building "a problem" on Tuesday as U.S. Secretary of State Condoleezza Rice began fresh talks in her uphill push for an Israeli-Palestinian peace deal this year.

The State Department voiced displeasure at Israel's latest plans to build new settlements after Rice met Barak for wide-ranging discussions that also covered Iran and its suspected pursuit of nuclear arms.

Rice later sat down with Ahmed Qureia, the chief Palestinian peace negotiator, ahead of three-way talks with him and Foreign Minister Tzipi Livni, who leads the Israeli negotiating team, on Wednesday afternoon.

Negotiations have so far produced no tangible progress and there is deep skepticism among Israelis, Palestinians and analysts that U.S. President George W. Bush can meet his goal of reaching a comprehensive peace agreement this year.

Rice said she would work as hard as possible to help the two sides strike a deal this year but said "nobody should underestimate the difficulty of doing that."

"The Middle East is not going to get better without the creation of a Palestinian state to live side by side with Israel in peace, security and democracy," she added at a news conference with Italian Foreign Minister Franco Frattini.

"So the question is if not now, when?" she added.

State Department spokesman Sean McCormack said Rice would strive for a deal this year but, in what seemed an effort to manage expectations, warned of the risks of pushing too hard and said "we'll see how far we get."

The last peace talks under U.S. President Bill Clinton collapsed in 2000, triggering a bloody Palestinian uprising against Israeli occupation that the Bush administration clearly does not wish repeated.

In addition to seeking a peace deal, Rice is trying to hold Israel and the Palestinians to the 2003 "road map" plan in which Israel agreed to halt all settlement activity and the Palestinians to crack down on violence against Israelis.

A Defense Ministry committee has approved building 20 housing units in Maskiot, an abandoned military base in the Jordan Valley that is outside the major West Bank settlement blocs that Israel plans to keep under any peace deal.

Qureia described the plan as a sign of Israeli bad faith.

"It's a real violation," Qureia told reporters after meeting Rice. "It is unfortunately a very bad message about (their) intention of reaching an agreement. It's a bad message."

Barak said Israel regarded the construction as justified, but noted that committee's approval was a procedural step and that the project was at an early stage.