Palestine's Prime Minister Salam Fayyad has dimmed Western hopes that a flurry of diplomacy next week could restart Israeli-Palestinian negotiations by saying that "conditions are not right" to get back into talks.

The declaration by one of the most prominent Palestinian moderates is a blow to the international Middle East Quartet of the US, EU, Russia and the UN, and its envoy Tony Blair, who arrives in Jerusalem next week in an attempt to breathe new life into a badly faltering peace process.

Mr Fayyad told a dinner hosted by the American Task Force on Palestine in Washington that talks now would simply generate "defensiveness" on both sides that would lead to a "mutual blame game".

While stressing that he and his colleagues still wanted meaningful negotiations, Mr Fayyad was reflecting deep Palestinian scepticism that the Israeli government of Benjamin Netanyahu is ready to agree acceptable terms for a two state solution.

Mr Fayyad also reinforced the gravity of the breakdown in trust with a clear warning that without real progress towards a Palestinian state, the alternative could be pressure for a single state.

"All we want is a sovereign and sustainable state on 22 per cent of the land. That's what we want. We want freedom from Israel, not the right to vote in Israel. If that doesn't happen, who will be able to prevent this conflict from turning into a struggle for equal voting rights [for Palestinians in Israel]?" The Quartet had hoped the Palestinians and Israelis would take part together in a meeting with Mr Blair and its envoys next week. Instead it will now hold separate meetings with negotiators from both sides hoping to get each to set out its positions on borders and security within three months.

Mr Netanyahu's office on Tuesday expressed "regret that there would not now be direct talks between the parties". But Mr Fayyad urged his audience on Wednesday night not to be "misled" by such statements, saying: "It's precisely because those talks happened so many times before but not on a basis of terms of reference that are really consistent with what is required to bring this conflict to an end..."

Palestinian negotiators, who have been calling for a freeze on Israeli settlement building, have been infuriated by Israel's latest plans for 1,000 new homes in the Jewish Jerusalem area settlement of Gilo and plans for what amounts to a new settlement next to the city's Arab neighbourhood of Beit Safafa.

An editorial in the liberal daily Haaretz strongly criticising the plans said that at a time when the prisoner exchange "is raising the stock of Hamas in the eyes of Palestinians... the Netanyahu government is making an effort to depict Fatah, committed to reaching a negotiated agreement with Israel, as devoid of purpose".