Israel is considering what it can do to enable a full-fledged Mideast peace process and Palestinian-Israeli negotiations to take off, Defense Minister Ehud Barak said Tuesday after talks with US Mideast envoy George Mitchell in New York.

But after the four-hour meeting, Barak would not commit to a temporary settlement freeze.

Asked whether Israel would agree to a freeze of perhaps three to six months, Barak replied: "I think it's a little bit too early to predict."

"We are considering every positive contribution Israel can make towards the taking off of a significant, important peace effort," Barak told reporters after the meeting at a New York hotel.

He said it was important to look at "the wider picture and to deal with each and every issue including the settlements."

"We think this wider framework ... is needed in order to enable (a) full-fledged regional peace process and a promising Palestinian-Israeli track as well as other tracks taking off successfully in a positive way," Barak said.

He said Prime Minister Benjamin Netanyahu would meet Mitchell in the next one, two or three weeks.

Looking ahead to the Netanyahu-Mitchell meeting, Barak said, "I believe it will contribute to further moving forward of the prospects of a regional peace and Israeli-Palestinian peace led by the United States."

Mitchell appeared for a photo opportunity with Barak before the talks began but did not make any comments.

"I don't think we are stuck now," Barak said after the meeting.

He called his talks with the US envoy "positive and in a good atmosphere, even though there are still differences."

They covered a wide range of issues including the strategic situation in the Middle East, prospects for a US-led regional peace initiative "which we in Israel support full-heartedly," and potential negotiations with the Palestinians, Syrians and Lebanese, Barak said.

Earlier, a source close to Barak had said that although the defense minister emerged from the meeting without any agreement on settlement construction, he was optimistic the two sides could "zoom out" of the settlement issue and focus on the wider regional diplomatic initiative.

The source said Barak went into the talks hoping to place the whole settlement issue in its proper perspective.

"Let's say that all settlement construction stops immediately," one source said. "Then have you solved the issue of Gaza, have you dealt with the issue of an agreement representing the end of the conflict and all claims against Israel?"

The source said it was obvious Israel was not embarking on any major new construction projects on Palestinian land in the territories, and that settlement construction issues could be worked out in the framework of negotiations with the Palestinians.

As to whether the US accepted Barak's argument about the need to de-emphasize the settlement construction issue and focus on the larger diplomatic process, the sources close to Barak said no one should expect Washington to come out with a statement saying it now supported construction in the settlements.

Nevertheless, Israeli officials said there were still ways to finesse the issue.

US State Department spokesman Ian Kelly, speaking as the meeting was wrapping up, had called the discussions "good and constructive" but downplayed the possibility of a breakthrough on the sensitive areas the sides have been exploring in efforts to restart Israeli-Palestinian negotiations.

"We don't expect any dramatic agreement today," he had said.

Kelly had reiterated the American position that "all parties have to meet their obligations under the road map. And, of course, you know for the Israelis that means a stop to settlements, which means a freeze of all activity, including natural growth."

In addition, he had stressed that "the Palestinians have their own obligations under the road map, and that's stopping incitement and proving that they can improve security. We also have made it clear to Arab states in the region that they should take steps toward normalization."

US officials have begun to make calls for Arab action a standard part of their talking points on the Israeli-Palestinian peace process, indicating the heightened importance they attribute to Arab participation.

Though Mitchell's meeting Tuesday was only with Barak, he has traveled throughout the world, including stops in North Africa and the Gulf, to try to elicit greater regional support and help if Israel made difficult concessions on settlements and other matters.

While the settlements were a significant part of the discussion, Barak - according to sources in his office - also steered the conversation in other directions, such as the recent steps Israel has taken to loosen its control in the West Bank, including moving IDF troops back from four key cities.

During the first two hours of the meeting, staff members participated, including Yitzhak Molcho, the prime minister's adviser on the Palestinian track, and Mike Herzog from the Defense Ministry. The second two hours were a private discussion between Barak and Mitchell.

Even as the discussion with the US over the settlements continued, the US confirmed Tuesday that it would provide as much as $3.8 billion in loan guarantees for Israel through 2011, as long as budgetary targets and other economic commitments are met.

Israel will sell shares in the Haifa and Ashdod ports on the Tel Aviv Stock Exchange by the end of March 2011, according to conditions set in the agreement signed by the two countries Tuesday. It will also start the construction of private power plants by the same date.

"The confirmation of the guarantees is a significant vote of confidence by the US administration," Finance Ministry Director-General Yarom Ariav said in an e-mailed statement.

Israel's budget deficit will balloon this year and next as the economy contracts and tax revenue falls. Israel must raise a net NIS 60b. ($15.4b.) in the next year and a half to finance the shortfall, Accountant-General Shuki Oren said, in a May 12 letter to Cabinet Secretary Zvi Hauser.

The US agreed in 2002 to provide Israel with $9b. in loan guarantees over several years, which was finally extended to 2011. Israel has used about $4.1b. of the guarantees, and about $1.1b. has been deducted by the US because of investment by Israel in settlements in the West Bank, a Finance Ministry spokesman said.

In 1992, then-president George H.W. Bush opposed a $10b. loan guarantee to Israel, because of settlement construction. He finally agreed in August 1992 - following the election of Yitzhak Rabin as prime minister and a shifting of Israel's settlement policy - as long as money being spent in the settlements was subtracted from the loan guarantees.