During their meeting in Jerusalem Wednesday, Prime Minister Benjamin Netanyahu told Palestinian President Mahmoud Abbas that Israel plans to resume construction in the West Bank settlements once the moratorium expires on September 26.

A senior Palestinian official reported that following the meeting Abbas threatened to quit the direct peace talks if building is resumed in the settlements

US Secretary of State Hillary Clinton and special Mideast envoy George Mitchell also took part in the two-hour meeting at the PM's official residence, where Israeli, Palestinian, and American flags were displayed.

West Bank Construction

"The prime minister is hosting Abu Mazen (Abbas) in his home in friendship and benevolence, but during the talks themselves, he will insist adamantly on Israel's security needs. There are no compromises on this matter," a senior official in the Prime Minister's Office said.

A Palestinian source told Ynet after the meeting that no breakthrough has been made that would allow the negotiations to continue without the "threat of renewed settlement construction."

The Palestinians told Netanyahu and Clinton that the resumption of settlement construction would make it difficult for them to continue negotiating with Israel.

However, one official said the Palestinians were under heavy pressure not to quit the talks and that the Americans have suggested that construction be resumed only in the major settlement blocs.

Mitchell said Wednesday night that Israel and the Palestinians are addressing the core disputes.

"They are tackling up front ... the issues that are at the center of the Israeli-Palestinian conflict," Mitchell told reporters after Netanyahu and Abbas met

"I will say that the two leaders are not leaving the tough issues to the end of their discussions ... We take this as a strong indicator of their belief that peace is possible."

Mitchell added that the US was working to renew the negotiations between Israel and Syria.

The US envoy is expected to travel to Damascus on Thursday and then head to Lebanon.

At the opening of the meeting, a smiling Netanyahu said he was happy to host Abbas, adding that "we have much work to do." Abbas, also smiling, humorously responded by saying the two leaders "haven't met in a while."

The Palestinian leader signed the guestbook at the PM's residence, writing that he is back at the site after a long absence to continue the negotiations, in the hopes of securing eternal peace in the entire region.

Abbas wrote that he especially wishes to secure peace "between the Israeli people and the Palestinian people."

The two leaders are expected to hold more talks after dinner.