Envoys from the international peacemaking Quartet seemed to make no headway Monday after separate meetings with Israeli and Palestinians officials in a bid to kickstart long-stalled peace talks.
After the talks, Israel extended a freeze on the transfer of tax revenues to the Palestinian Authority (PA) while the Palestinians restated their demand for a halt to Jewish settlement before talks can resume.
"Envoys continued to encourage the parties to resume direct bilateral negotiations without delay or preconditions," a guarded Quartet statement.
They "called upon the parties to create a conducive environment for restarting talks and urged the parties to refrain from provocative actions."
A UN official said the envoys would have another round of meetings with the two sides in December.
But Israel's security cabinet voted on Monday afternoon to maintain a freeze on the transfer of tax revenues to the Palestinian Authority, imposed after Palestine won UNESCO membership.
"There's no change in the decision of November 1, which is for a temporary hold on the transfer of funds to the PA," an Israeli official told AFP on condition of anonymity, after Israeli officials met the Quartet envoys.
He did not say whether the tax issue would next be reviewed.
"Israel remains ready for the immediate resumption of talks without preconditions but unfortunately... they continue to raise artificial concerns that prevent the resumption of direct talks," he said.
In Washington, meanwhile, the Department of State, calling the talks "constructive," said the next round would be held in mid-December.
"What's important here is that this is a process," said State Department spokesman Mark Toner. "You know, progress is incremental."
"This was certainly a constructive meeting," he said, adding the sides would continue to plug away at reaching an agreement.
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In a statement after their Quartet meeting, the Palestinians repeated their position that talks could not resume without an Israeli settlement freeze and a framework for negotiations.
Palestinian negotiator Saeb Erakat called on Israel to accept "clear terms of reference" for any talks, including that discussions would be based on the borders that existed before the 1967 Six Day War.
"We are ready to discuss all final status issues once Israel proves its seriousness and commitment by freezing all its illegal settlement construction in the occupied Palestinian territory, especially in occupied east Jerusalem," Erakat said.
"We cannot understate the importance of this issue. There is no doubt about the fact that Israeli settlements and the two-state solution are mutually exclusive."
Under the terms of an economic agreement between the sides signed in Paris in 1994, Israel transfers to the Palestinian Authority tens of millions of dollars each month in customs duties levied on goods destined for Palestinian markets that transit through Israeli ports.
The remittances constitute a large percentage of the Palestinian budget.
Israeli-Palestinian talks have been on hold for over a year, grinding to a halt shortly after they began in September 2010 over the issue of settlement construction.
Israel has so far refused to renew a partial 10-month settlement freeze, which expired last year and says it will only talk if there are no pre-conditions.
The Quartet, composed of the United Nations, United States, European Union and Russia, is trying to bring the two sides back to the table under a proposal laid out in September shortly after the Palestinians submitted a request for full UN state membership.
The proposal sought the resumption of talks within a month, with the goal of an agreement within a year, but there has been no sign of progress so far.
Quartet envoys have already held one round of separate meetings with the two sides, and Washington's envoy David Hale held talks on Sunday night with Palestinian president Mahmud Abbas ahead of Monday's discussions.
"Hale offered president Abbas direct negotiations with Israel with the presence of the Quartet, but president Abbas told him that he was willing on the condition that Israel halt settlement activity... and agree to the principle of a two-state solution on the 1967 borders," Erakat told AFP.
The Palestinians say that without such guarantees from Israel, the negotiations will simply allow the Jewish state to continue settlement construction.