JERUSALEM - The United States and Israel ended another round of talks on Wednesday with no sign yet of a deal on a West Bank settlement freeze, but a U.S. envoy planned to meet again with Prime Minister Benjamin Netanyahu on Friday.

The decision to extend discussions kept open the possibility of a meeting next week involving Netanyahu, U.S. President Barack Obama and Palestinian President Mahmoud Abbas. All three will be at the United Nations General Assembly in New York.

Failure to arrange at least an informal encounter between the Israeli and Palestinian leaders would be a setback for Obama, who has been trying to wring a settlement housing construction freeze from Netanyahu and restart peace talks.

Obama's Middle East envoy, George Mitchell, who had held separate meetings with Netanyahu and Abbas on Tuesday, saw the Israeli leader again for two hours in Jerusalem on Wednesday.

A photo opportunity at the start of the meeting appeared to speak volumes. After a stiff handshake for the media, Netanyahu turned his back on Mitchell with scarcely a word and strode into his office, leaving Obama's envoy to follow behind.

Mitchell has been trying to work out a deal with a defiant Netanyahu over Washington's demand that he halt construction in Jewish settlements in the occupied West Bank. Obama also wants Arab nations to take steps toward recognising Israel.

A statement issued by Netanyahu's office after Wednesday's meeting with Mitchell gave no indication any substantive progress was made: The prime minister and Senator Mitchell had a good meeting this morning, the statement said.

They decided to continue their discussions in a meeting that will take place this coming Friday, after Senator Mitchell returns to Israel from visits to countries in the region.

The U.S. State Department has said Mitchell plans to visit Egypt, Jordan and Lebanon this week.

PALESTINIAN CONDITION

Abbas has made a resumption of peace negotiations with Israel, suspended since December, conditional on halting settlement activity as stipulated by a U.S.-backed 2003 peace road map charting a course toward Palestinian statehood.

But some Palestinian officials have said he might agree to meet Netanyahu on the sidelines of the General Assembly for talks that would not be characterised as formal negotiations.

Abbas broke off talks over the previous Israeli government's offensive in the Gaza Strip. Since Obama took office in January and Netanyahu in March, negotiations have not resumed.

In the most serious rift in U.S.-Israeli relations in a decade, Netanyahu has resisted Obama's call to halt all construction in settlements in the West Bank and Arab East Jerusalem. Obama also wants Arab nations to take steps toward recognising Israel. They have so far expressed reluctance.

Netanyahu, who heads a coalition that includes pro-settler parties, has said he would be prepared to limit temporarily the scope of building work but projects under way would continue.

Some 500,000 Israelis live in the West Bank and in Arab East Jerusalem, territory captured in a 1967 war, alongside some three million Palestinians. The World Court calls the settlements illegal and Palestinians say the enclaves could deny them a viable state.
(Editing by Alastair Macdonald)

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