The Palestinians said on Wednesday "Israeli obstinacy" made Washington give up on efforts to freeze Jewish settlement and questioned whether the United States could ever help them attain independence.

Senior Palestinian official Yasser Abed Rabbo said that with its bid to revive direct Israeli-Palestinian negotiations now at a dead-end, the United States was proposing a return to indirect talks to try to unstick a peace process in deep crisis.

The Palestinians had demanded a halt to Israeli settlement building in the West Bank and East Jerusalem before agreeing to resume direct talks in pursuit of the establishment of a sovereign Palestinian state alongside Israel.

Under U.S. stewardship, the Israeli and Palestinian leaders held three rounds of talks in September. But the Palestinians pulled out when Israel's 10-month freeze on West Bank settlement building came to an end on Sept 26.

Israel says a settlement freeze was a precondition that never existed in previous stages of the 20-year-old peace process. It says Palestinian President Mahmoud Abbas took too long to sit down for talks after Prime Minister Benjamin Netanyahu announced the temporary moratorium in November 2009.

The Palestinians had refused because the settlement freeze did not include East Jerusalem.

The U.S. announcement was a big setback for President Barack Obama, who believes settling the Middle East conflict is "a vital national security interest", Abed Rabbo said.

When launching the talks in September, Obama said he hoped to have a peace deal signed within a year.

Abed Rabbo, a senior aide to President Mahmoud Abbas, said in an interview with Voice of Palestine radio that U.S. policy had changed "because of Israeli obstinacy and rejection".

If the United States could not get Israel to halt settlement "for a limited period", how would it be able "to make Israel accept a balanced solution on the foundation of international resolutions and the two-state solution?", he asked.

The Palestinians were also surprised the United States had not condemned Israeli policy, he added.

Chief Palestinian negotiator Saeb Erekat said Obama must hold Israel to account for "the failure of the peace process".

U.S. officials said Israel had been willing to extend the moratorium on West Bank construction but refused to halt building in and around East Jerusalem -- land it views as part of its capital.

RETURN TO INDIRECT TALKS

Israeli government spokesman Mark Regev said Israel remained determined in its "commitment to continue the current effort to achieve a historic peace agreement with the Palestinians".

Officials in Washington said the United States was weighing the option of holding separate discussions with both sides.

Abed Rabbo said the United States had told the Palestinians late on Tuesday it planned indirect talks.

"This obstruction has now led the American administration to choose a new method: returning to negotiations with the two parties, each separately, on how to get the political process out of this predicament," he said.

Zvi Hauser, an aide to Israeli Prime Minister Benjamin Netanyahu, told Israel Radio it wasn't clear what the next stage would be. But he added: "Apparently matters will be conducted at this stage via an indirect channel."

Netanyahu, whose pro-settler ruling coalition had lobbied fiercely to oppose a freeze, had accused the Palestinians of seeking to set preconditions and of seeking to determine the borders of a future state before addressing other core issues.

U.S. officials speaking on condition of anonymity on Tuesday detailed three reasons for abandoning their efforts to get a settlement freeze. First was that Israel would not halt building in East Jerusalem, which the Palestinians want as their capital.

Second was a concern that unless sufficient progress was made during a temporary settlement freeze of say 90 days, the mediators could end up in the same place as they started at.

There were also concerns about the size of the incentives the United States had offered Israel for a temporary extension. Israeli sources said these had included 20 F-35 stealth fighters worth $3 billion.