With a diplomatic push from U.S. President Barack Obama, Israeli and the Palestinian leaders will start direct peace talks on Thursday shadowed by scepticism on all sides and fresh violence in the volatile West Bank.

Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas will meet at the State Department, relaunching talks after a 20-month hiatus and seeking a deal within one year that will set up an independent Palestinian state side-by-side with a secure Israel.

Obama, who has staked considerable political capital on the Washington talks during a pivotal U.S. congressional election year, urged both sides to grasp the chance for peace after separate meetings at the White House on Wednesday.

This moment of opportunity may not soon come again. They cannot afford to let it slip away, Obama said after a day of personal diplomacy on a problem that has confounded generations of U.S. leaders.

But the issue of Jewish settlements in the occupied West Bank looms over the talks, with the Palestinians saying they will drop out of the negotiations unless Israel extends its self-imposed moratorium on new settlement construction when it expires on September 26.

Thursday will see both sides get down to business after the pomp of their White House reception.

U.S. Secretary of State Hillary Clinton will host the State Department talks, with opening statements expected around 10 a.m. EDT (1400 GMT).

U.S. Mideast peace envoy George Mitchell, who has been shuttling between the two camps for months to lay down the parameters for the negotiations, will give a public briefing after talks conclude to explain what -- if anything -- has been accomplished.

AMBITIOUS TIMELINE

Violence flared anew as the leaders arrived in Washington, underscoring the challenges ahead.

Four Israeli settlers were killed by the Islamist Palestinian group Hamas in a shooting attack in the West Bank on Tuesday and another two people were injured in a similar attack by suspected Palestinian gunmen on Wednesday.

Both Netanyahu and Abbas condemned Tuesday's attack, which Obama described as senseless slaughter.

But they put new emphasis on Israel's security concerns and Netanyahu, who heads a coalition dominated by pro-settler parties, has resisted any formal extension of the partial construction freeze, leaving a question mark over the prospects for the talks.

Obama's personal foray into Middle East peacemaking, and his ambitious one-year timeline for a deal, comes as his fellow Democrats face potentially big losses in November's congressional elections, with U.S. voters already frustrated over the slow pace of economic recovery.

The talks are also seen as a test of Obama's faltering drive to improve ties with the Muslim world as he pushes for a united front against Iran's nuclear ambitions.

Both Netanyahu and Abbas were conciliatory after their meetings with Obama on Wednesday but both also stressed their own political imperatives: security for Israel in Netanyahu's case, and a halt to settlement activity for Abbas.

Abbas in particular is in a delicate position. His Fatah party holds sway over only the West Bank after Hamas seized control of Gaza in 2007, and analysts say it would be politically perilous for him to accept any resumption of settlement construction on land captured in the 1967 war while talks are under way.

Obama's White House meetings on Wednesday also included Jordan's King Abdullah and Egyptian President Hosni Mubarak, drawing in two key moderate Arab leaders whose countries already have peace deals with Israel.

Mubarak spokesman Soliman Awaad said all sides should be ready for long, tough negotiations -- provided the talks are not quickly derailed by the settlement issue.

It will take more than handshakes, smiles and photo ops to make this long-awaited peace in the Middle East. What is really needed is for the United States to step in, remain committed, remain engaged, he told reporters.

(Additional reporting by Matt Spetalnick, Ross Colvin, Steve Holland, Jeff Mason and Alister Bull; editing by Eric Beech)

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