Reacting to the tepid response to this week's attempt by President Obama to jumpstart negotiations between Israel and the Palestinians, two senior U.S. officials made the case Thursday that critics are obsessing over marginal obstacles while the sides move slowly but surely toward the negotiating table.

The officials, who spoke to POLITICO on the condition of anonymity, dismissed suggestions that Obama had backed down on demands that Israel "freeze" settlements, and said that despite public Palestinian combativeness, Palestinian negotiators even today are hammering out the framework for a new round of talks - the so-called "terms of reference" that have become the central focus for Special Envoy George Mitchell and his team.

"If nine months ago at least one side was unequivocally stating they wouldn't return to negotiations, and now we're in deep discussions with both sides on the basis to launch negotiations, it seems to me that clearly we're in a better position than we were," said one of the U.S. officials closely involved in the talks.

“Settlements was always part of a means to the end of negotiations,” another official involved in the talks said. “We still think it's important and our policy hasn't changed. And the fact is, Israel is prepared to do significant things on this issue, less than we'd like, but far more than any previous government.”

The officials' upbeat assessment was a contrast to the sullen handshake Tuesday between Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas, who were chided by the president to stop haggling over side-issues and begin talking about what have long been seen as the four central "final status" issues.

"The time has come to re-launch negotiations without preconditions that address the permanent status issues: security for Israelis and Palestinians, borders, refugees, and Jerusalem," Obama said at the United Nations Thursday.

Immediately after the meetings, both sides gave little indication that their positions had changed. The Palestinians maintained their insistence on an end to settlements as a precondition for talks, and the Israelis publicly crowed that they'd successfully resisted Obama’s push for a settlement freeze.

"This government has shown that you don't always need to get flustered, to surrender and give in," Israel’s hard-line Foreign Minister Avigdor Lieberman told Israel Radio.

"The Netanyahu government is a real problem and there is no common ground for negotiations with it,” Abbas told Al-Hayyat Thursday. “Construction in the settlement is continuing, Netanyahu is declaring Jerusalem and [Palestinian]refugees topics not up for negotiations, so what is there to talk about?"

But American officials said the public bluster was meant for domestic consumption, and progress has in fact been made in nudging the two sides to talks.

"We think that there has been significant movement from the Israelis on settlements and it was never a precondition," the second U.S. official told POLITICO, stressing that Americans never used the word "freeze" and were always prepared for compromise on the issue.

Both U.S. and Israeli negotiators have said in recent months that they were working toward a deal on a moratorium on new housing starts on disputed territory, though critics have warned that even that could mean a new boom in settlement activity.

A source close to the Palestinian side told POLITICO that Obama asked Palestinian leaders to compromise on a full settlement freeze from Israel as a condition for entering talks. He promised his team would continue to press Israel on the issue. Meantime, he offered to provide them “terms of reference” for prospective negotiations – something the Palestinian side had been asking for.

But the American officials cautioned not to make too much of statements motivated by domestic politics. Palestinian and Israeli officials, including Israeli Defense Minister Ehud Barak, were set to meet Mitchell in New York today, and to resume talks in Washington next week. The issues at hand, one American official said, have narrowed.

"We need to come to closure on getting the Palestinians to the table without that precondition [of a settlement freeze], and get the Israelis to accept terms of reference in these negotiations that will work, the official said.

An apparent remaining sticking point: How, and whether, the terms of reference will formally cite the status of Jerusalem, which conservative members of Netanyahu's governing coalition consider a deal-breaker. Obama, however, named it in his speech to the United Nations Wednesday, suggesting the American side wants to make the grounds for talks explicit.