The Obama administration's decision to stop seeking a new Israeli settlement freeze as a way back into talks with the Palestinians has diminished prospects of achieving a peace accord within a year and eroded U.S. credibility in the region, analysts said Wednesday.

The decision also represented a belated recognition that even if they had persuaded Israel to renew a construction moratorium in the West Bank for three months, U.S. officials would have faced an even more difficult problem after that expired.

President Obama understood "that after three months of a second settlement freeze, he would have found himself without any kind of agreement and facing repeated demands to extend the freeze again, necessitating another exhausting bargaining session with [Israeli Prime Minister Binyamin] Netanyahu,'' Haaretz newspaper political commentator Akiva Eldar wrote Wednesday.

Israelis and Palestinians traded blame Wednesday over who was responsible for the U.S. decision, which has left both sides perplexed about the way forward and hoping for clarity from a speech on the Middle East that Secretary of State Hillary Clinton will deliver in Washington on Friday.

Saeb Erekat, the chief Palestinian negotiator, said the U.S. decision would have "grave consequences in the region.''

"If you cannot have him stop settlements for a few months, what do you expect get out of him on Jerusalem or the 1967 borders,'' Erekat said of Netanyahu in an interview Wednesday. "I think Mr. Netanyahu knows the consequences for the American administration's credibility in the region.''

Israeli officials, who always were cool to extending a settlement freeze as a precursor to talks, said the Palestinians were to blame for insisting on including Jerusalem in the freeze. Still, the officials portrayed the change in American tactic as an opportunity for progress.

"That mechanism proved not to be effective and now we have to find an alternative mechanism to move this process forward,'' said an Israeli official, speaking on the condition of anonymity because of the sensitivity of the discussions. "As we go into this next stage of the peace process, we think the chances of it succeeding are even greater because of the close coordination with the United States.''

The administration, which in September set a one-year deadline for negotiations, expended enormous political capital over nearly two years by making a settlement freeze a priority. The effort rankled relations with Israel and inflated hopes in the Arab world that the United States could persuade Israel to halt construction in the West Bank and win further Israeli concessions down the road. Instead, the U.S. ended up spending more time haggling with Israel over a settlement freeze than negotiating between Israelis and Palestinians over the core issues that divide them, analysts said.

"Trying to get a freeze . . . was always the wrong focus,'' said Aaron David Miller, a former U.S. peace negotiator. "It forced the Obama team to either pummel the Israelis into one or bribe them. Neither worked. And now 20 months in, we have no freeze, no direct talks, no process, and no prospect of a quick agreement. Plus, our street credibility is now much diminished and our options are bad.''

After the 10-month Israeli partial moratorium expired in September, the Obama administration developed a package of incentives, including billions of dollars' worth advanced fighter jets, to entice Israel into extending the freeze for three more months. But talks on the extension collapsed, including over whether the United States would accept Israeli construction in parts of East Jerusalem that Israel occupied in the 1967 Middle East war.

"The significance of the U.S. decision to stop pushing for a moratorium . . . is that Obama is refusing to give Netanyahu a seal of approval to build in Jerusalem,'' Eldar wrote.

A Palestinian delegation, which was invited to Washington, won't travel there before Palestinian President Mahmoud Abbas consults in the coming days with the Palestine Liberation Organization's executive committee and Abbas's Fatah Party's central committee, Erekat said.

Erekat also said in light of the breakdown and decisions by Brazil, Argentina, and Uruguay this week to unilaterally recognize Palestine as an independent state , the Palestinians would formally appeal to the U.S. to do the same.

As for West Bank construction, the Israeli official said Israel will continue to build in existing settlements in the West Bank but will not expropriate more land for new settlements.

Israel's security cabinet on Wednesday also decided to allow for expanded exports out of the Gaza Strip. An Israeli official, speaking on condition of anonymity because he was not authorized to speak on the matter, said the policy would be fleshed out in the coming days, but that in principle, exports of agricultural produce, textiles and manufactured furniture would be among the items that Palestinians in Gaza would be permitted to export abroad or to the West Bank.

Israel has limited Gaza's exports as part of a blockade of the Gaza Strip that is designed in part to put pressure on the Hamas-led government that seized power there in 2007. The international community has pressured Israel to allow the resumption of exports.