President Barack Obama urged Israeli and Palestinian leaders on Wednesday not to let the chance for peace slip away as he opened a U.S.-sponsored summit to relaunch direct talks shadowed by Middle East violence.

But with a fresh West Bank shooting attack and a persistent deadlock over Jewish settlements, Obama acknowledged scepticism in some quarters about his prospects for succeeding where so many U.S. leaders have failed and said he was under no illusions about the challenges ahead.

Wading into hands-on peacemaking on the eve of restarting face-to-face negotiations after a 20-month hiatus, Obama brought both sides together for ceremonial handshakes at the White House and a commitment to try to forge within a year a deal on Palestinian statehood.

As I told each of them today, this moment of opportunity may not soon come again. They cannot afford to let it slip away, Obama said after one-on-one talks with Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas.

But the peace process already faced a major stumbling block with Israel resisting any formal extension of a partial freeze on construction in Jewish settlements in the occupied West Bank. Abbas has threatened to pull out of the dialogue if building resumes after the September 26 expiration of the moratorium.

Obama earlier condemned as senseless slaughter an ambush on Tuesday by the Islamist Palestinian group Hamas that killed four Jewish settlers in the occupied West Bank and vowed that extremists and rejectionists would not derail peace efforts.

In an attack coinciding with Obama's inauguration of the summit, suspected Palestinian gunmen wounded two Israelis in the West Bank on Wednesday.

Obama concluded a flurry of personal diplomacy hosting Netanyahu, Abbas, Egyptian President Hosni Mubarak and Jordan's King Abdullah at a White House dinner before the formal start of direct Israeli-Palestinian talks at the State Department on Thursday.

The summit marks Obama's riskiest plunge into peacemaking, not least because he wants to forge a deal within 12 months, a timeframe considered a long shot by most analysts.

Striking a conciliatory tone before the dinner, Netanyahu called Abbas my partner in peace and pledged to seek an end to the conflict once and for all.

But Netanyahu also underscored Israel's demands that any final peace deal include security arrangements to ensure a future Palestinian state, which he says must be demilitarized, would not become an Iranian-sponsored terror enclave.

Abbas pressed Netanyahu to freeze all settlement activity and said the time has come to make peace, end Israeli occupation and establish a Palestinian state. He also condemned the latest militant violence in the West Bank.

(Additional reporting by Ross Colvin, Steve Holland, Jeff Mason and Alister Bull in Washington and Allyn Fisher-Ilan in Jerusalem; Editing by David Alexander and Eric Beech)

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