A RENEWAL of peace talks between Israel and the Palestinians late next month now appears a distinct possibility, although Israeli and US officials will continue to meet in the coming weeks to hammer out details of a compromise formula acceptable to both sides.

At Wednesday’s meeting in London between Israeli prime minister Binyamin Netanyahu and US Middle East envoy George Mitchell, the sides inched closer to a package which will enable the resumption of bilateral talks on the Israeli-Palestinian track, suspended since Mr Netanyahu became prime minister five months ago.

Palestinian prime minister Mahmoud Abbas had linked the renewal of negotiations to a commitment by Israel to halt construction at West Bank Jewish settlements and in east Jerusalem.

However, it looks as though he will have to accept a US-mediated formula falling significantly short of a total moratorium on Israeli building. According to Israeli media, Jerusalem will accept a limited construction freeze, probably lasting nine months, but will be allowed to complete building some 2,500 units already started. According to the Ha’aretz newspaper, Washington has agreed to the Israeli demand that there will be no restrictions on building in east Jerusalem, annexed by Israel in 1967, but viewed by Palestinians as the future capital of an independent state.

In return for a cessation of settlement building, Israel expects steps from the Arab world towards normalisation of ties. So far both Oman and Qatar have indicated a willingness to restore low-level ties, but Israeli officials have indicated that they want more dramatic steps, such as permission from Saudi Arabia for Israeli aircraft to fly over their territory.

Mr Netanyahu welcomed as “a positive step” comments by Palestinian president Mahmoud Abbas that he would be willing to meet the Israeli leader at next month’s UN General Assembly session in New York. The Palestinians have insisted that negotiations resume from the point where they broke off with the previous Israeli government, under Ehud Olmert.

But Mr Netanyahu wants to add two new Israeli demands: recognition of Israel as the homeland of the Jewish people, and a clause recognising that a peace agreement marks the end of the conflict.

Before heading home yesterday after a four-day trip to Europe, Mr Netanyahu stressed that reports that he had already agreed to a settlement freeze were premature. “There are no agreements and no decisions, there are only baseless rumours. Attempts are being made to bridge the gaps, but the reports of decisions being made are simply unfounded,” Mr Netanyahu said.

After talks with the Israeli prime minister, German chancellor Angela Merkel confirmed that she had called on him to stop settlement building, but refused to provide details of their discussions. “We must make progress in the peace process . . . and a stopping of the settlement is very important,” she said. “Time is of the essence.”