Secretary of State Hillary Rodham Clinton prepared Wednesday to convene a second set of peace talks between Israeli and Palestinian leaders, with no resolution of a conflict over Jewish settlements in sight.

Clinton spent the day meeting individually with a succession of Israeli and Palestinian officials, preparing for more discussions Wednesday evening between Israeli Prime Minister Binyamin Netanyahu and Palestinian President Mahmoud Abbas. The two men met Tuesday in the Egyptian resort city of Sharm el-Sheikh, and in a gesture, Abbas will travel to the prime minister's residence in Jerusalem for Wednesday's talks.

"The status quo is unsustainable," Clinton said after meeting Wednesday morning with Israeli President Shimon Peres in Jerusalem. She told reporters that Netanyahu and Abbas "are getting down to business and grappling with core issues that can only be resolved through face-to-face negotiations."

The looming expiration of a ten-month freeze on Israeli settlement growth threatens to derail the discussions, but a senior U.S. official who spoke on the condition of anonymity said the settlement issue was discussed and that both men appeared interested in finding a solution.

"It is very clear to me that both leaders are sincere, are serious to want to find a way to continue the discussions," the official said.

An Israeli official, also speaking anonymously, said: "We want the process to work, and the goal is to keep the process going. Between zero and the tens of thousands of housing units that are in the pipeline, there are a variety of options."

George J. Mitchell, the U.S. special envoy to the Middle East, sidestepped a question on whether progress was being made on the settlement dispute. He told reporters that "we continue our efforts to make progress, and we believe we are moving in the right direction, overall."

Mitchell emphasized that for the first time in these talks, Netanyahu and Abbas have begun to discuss the core issues dividing them, such as borders, security, the status of Jerusalem and the right of Palestinians who had fled during the 1948 war to return to their homes.

"I am not going to attempt to identify each one that was discussed, but several were - in a very serious, detailed and extensive discussion," Mitchell said.

Mitchell's remarks were significant because the former Senate majority leader, who is known to choose his words carefully, had said after the first set of talks in Washington that such core issues had not been broached in a substantive fashion. Palestinian officials have indicated they would like to discuss borders first, while Israeli officials appear more keen to discuss security.

The U.S.-Israeli-Palestinian meeting followed bilateral talks Clinton held earlier with the two leaders. But looming over this week's diplomacy is the 10-month moratorium on settlement construction that is due to expire on Sept. 26.

Palestinian officials talked tough as they arrived at the negotiations, reiterating threats to walk out if the moratorium does not continue. Netanyahu, under pressure from right-leaning members of his governing coalition, on Sunday rejected a total freeze but suggested some flexibility on the issue. He said Israel could not "freeze the lives" of residents but would also not begin a massive construction program.

Before she arrived here, Clinton told reporters traveling with her that although the United States wants Israel to extend the moratorium, there could be other agreements between the two sides that would improve the atmosphere for talks and permit them to continue. Palestinian officials, for instance, are seeking to begin the discussions by focusing on the potential borders of the two states, which would identify which settlements Israel might keep in a peace deal. Israeli officials want Palestinian recognition of Israel as a "Jewish homeland."

"There is no prospect for success in the absence of direct negotiations," Clinton said. "For me, this is a simple choice: no negotiations, no security, no state."

The administration had hoped that direct talks would have begun when the construction moratorium was announced, making it harder to let the ban lapse. Now U.S. officials are trying to keep the talks going past the initial phase, making the settlement issue less of a factor in whether the talks continue. Clinton said Monday that the "time is ripe" for the two sides to make a deal.

President Obama has set an ambitious goal of concluding the talks within a year - a tall order, given that a final agreement has eluded peacemakers for decades.

Mitchell reiterated the administration's desire to achieve a "comprehensive peace," involving not only Israel and the Palestinians but also Israel's other Arab neighbors. To that end, he plans to visit Syria and Lebanon later this week.