U.S. President Barack Obama urged Israeli and Palestinian leaders on Wednesday not to let the chance for peace slip away as he opened a Washington summit 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 peacemaking on the eve of the relaunch of face-to-face Israeli-Palestinian negotiations after a 20-month hiatus, Obama said leaders from both sides shared Washington's conviction that a deal on Palestinian statehood could be reached within a year.

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 talks 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 revived peace process if building resumes after the September 26 expiration of the moratorium.

Obama earlier condemned as senseless slaughter an attack on Tuesday by 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.

The message should go out to Hamas and everybody else who is taking credit for these heinous crimes that this is not going to stop us from not only ensuring a secure Israel but also securing a longer lasting peace, Obama told reporters.

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

DIRECT TALKS

Obama was hosting Middle East leaders 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, Netanyahu called Abbas my partner in peace and pledged to seek an end to the conflict once and for all, according to excerpts of a speech he was due to deliver at the White House dinner.

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.

Deep distrust between the two sides is one of the biggest obstacles to Obama's quest for a two-state solution that has eluded so many of his predecessors.

There is also the danger that failure to achieve an accord could set back Obama's faltering attempts at winning over the Muslim world as he seeks solidarity against Iran.

Hamas militants declared war on the talks on Tuesday even before they began and warned of further attacks, underscoring the threat hard-liners pose to the fragile peace process.

The attack could make Netanyahu even less likely to accede to Palestinian demands to offer a further freeze in Jewish settlement-building on occupied land in the West Bank.

The looming expiration of Israel's 10-month partial moratorium on new housing construction in Jewish settlements could represent an early obstacle in the peace talks.

Abbas, politically weak because he governs only in the West Bank while Hamas controls Gaza, could suffer another blow to his prestige among his people if he sticks with the talks while Israel accelerates building on land captured in a 1967 war. Obama's aides have been scrambling for a compromise.

Netanyahu, who heads a government dominated by pro-settler parties like his own, has not given any definitive word on the issue. But his office said he told Secretary of State Hillary Clinton on Tuesday night there was no change in his cabinet's decision to allow the freeze to lapse.

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

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