CAIRO (Reuters) - The Arab League said on Wednesday it saw a "window of hope" for Middle East peace and Arab states would respond positively to U.S. President Barack Obama's vision for resolving the Arab-Israeli conflict.

But the league likened negotiating with Israel while settlements were continuing to expand as tantamount to surrendering on "matters over which we cannot surrender."

"We see an open window in what the American president has said ... Now there is a window of hope that was not present for at least the previous eight years," Arab League Secretary General Amr Moussa told journalists after a meeting of Arab foreign ministers in Cairo.

Obama sought to change Muslim perceptions of the United States in a June 4 speech from Cairo. He said he wanted to see "serious, constructive" peace talks aimed at finding a two-state solution between Israel and the Palestinians. Obama wants Israeli Prime Minister Benjamin Netanyahu to declare a total settlement freeze. Netanyahu wants to build further within existing blocs to accommodate what he calls "natural growth" in settler families.

The Arab League said in a resolution on Wednesday that Arab states were "ready to deal positively with Obama's proposal to resolve the Arab-Israeli conflict" and to take steps needed to support U.S. action aimed at achieving peace.

Arab states said they were looking for the announcement of a U.S. peace plan that would include a specific time frame, and mechanisms for supervision of implementation and monitoring.

But they questioned the logic of negotiating while Israeli settlements in the occupied West Bank were continuing to expand.

"Negotiating while settlement continues is tantamount to surrendering to Israel on matters over which we cannot surrender," Moussa said.

"Settlements destroy peace and prevent negotiations. If settlement does not stop, there will be a big catastrophe in the peace (process)."

Palestinian President Mahmoud Abbas has ruled out a resumption of peace talks with Israel until Netanyahu commits to a full settlement freeze, including natural growth, as called for under a 2003, U.S.-backed peace "road map."

Israel has sought to ease tensions over settlements by committing to remove more West Bank roadblocks and unauthorized settler outposts.