NEW YORK - An impatient U.S. President Barack Obama scolded Israeli and Palestinian leaders on Tuesday for not doing more to unblock the peace process and urged them to relaunch negotiations soon.

It is past time to talk about starting negotiations. It is time to move forward, Obama told Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas, who met for the first time since Netanyahu took office in March.

Abbas, in a statement, repeated Palestinian insistence that Israel halt settlement building in the occupied territories including East Jerusalem -- a move which Netanyahu's government has resisted.

Obama set Middle East peace as a top priority at the start of his presidency in January, in a contrast to his predecessor George W. Bush, who was criticized internationally for neglecting the conflict.

The summit yielded no immediate signs of a breakthrough. It was Obama's most direct intervention into a six-decade conflict that has long defied U.S. diplomatic efforts.

But in a sign that pressure from Obama may yet produce progress, Netanyahu told reporters after the talks that there had been general agreement that the peace process should resume as soon as possible with no preconditions.

It was unclear how and when that might happen.

Netanyahu has resisted U.S. pressure to freeze all Jewish settlement building in the occupied West Bank, a key Palestinian demand.

As the summit got underway, Obama had to coax Netanyahu and Abbas into a handshake, both with strained smiles.

At times sounding frustrated, Obama urged the sides to relaunch stalled peace negotiations without delay.

My message to these two leaders is clear, Obama said. Despite all the obstacles, despite all the history, despite all the mistrust, we have to find a way forward.

Permanent status negotiations must begin and begin soon.

U.S. Mideast peace envoy George Mitchell, briefing reporters later, said Obama had hoped to convey his sense of urgency, his impatience, his view that there is here a unique opportunity at this moment in time that may pass if there is further delay.

The meeting came one day before Obama's debut before the U.N. General Assembly, but officials downplayed expectations of a major diplomatic shift.

BLUNT ON ALL SIDES

Hoping to push the process forward, Obama said Mitchell would meet Israeli and Palestinian negotiators again next week. He also said Secretary of State Hillary Clinton would report back to him in October on the status of talks.
Mitchell described the meeting as blunt on all sides but also suggested that an Israeli settlement freeze is not essential for peace talks to resume.

We are not identifying any issue as being a precondition or an impediment to negotiation, he told reporters.

Abbas, in his statement, said Palestinians had repeated their demand that Israel stop settlement construction and desire for Israel to turn over control of almost all of the territory Israel captured in 1967.

Obama said both sides should take positive steps and be ready for compromise.

Palestinians have strengthened their efforts on security but they need to do more to stop incitement and to move forward with negotiations, he said.

Israelis have facilitated greater freedom of movement for the Palestinians and have discussed important steps to restrain settlement activity but they need to translate these discussions into reality on this and other issues, he said.

With the sides locked into opposing positions, the New York meeting fell far short of the diplomatic coup White House aides had once hoped for.

Hopes dimmed last week after Mitchell left the region on Friday without reaching a deal with Israel over limits on Jewish settlement construction.

Each side has blamed the other for the failure of Mitchell's mission, which underscored the lack of progress on one of Obama's chief diplomatic goals and a major factor in his drive to repair America's image in the Muslim world.

However, his administration has made little headway in clearing obstacles to talks on a deal to create a Palestinian state in the West Bank and Gaza Strip and resolve disputes over the future of Jerusalem and Palestinian refugees.

Relations between Washington and its close ally Israel are facing the worst strains in a decade with Netanyahu's right-leaning government resisting U.S. pressure to halt settlement expansion.

Netanyahu, whose coalition has a strong pro-settler wing, has rejected a total cessation of building within settlements, saying the natural growth of settler families must be accommodated. Washington has explicitly rejected that argument.

Netanyahu offered Mitchell a nine-month freeze in settlement building in the West Bank, Israeli officials said, but the envoy was pressing for a one-year suspension.

(Additional reporting by Caren Bohan in New York and Jerusalem bureau, writing by Matt Spetalnick and Andrew Quinn, editing by )

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