WASHINGTON - President Barack Obama and Prime Minister Benjamin Netanyahu launched their first White House talks on Monday grappling with rare U.S.-Israeli differences over Middle East peacemaking and how to deal with Iran.

Wading into the thicket of Israeli-Palestinian diplomacy four months after taking office, Obama planned to press the hawkish Israeli leader to endorse Palestinian statehood and freeze Jewish settlement expansion on occupied land.

But Netanyahu, who heads a new right-leaning government that has balked so far at embracing a two-state solution to the decades-old conflict, appeared unlikely to comply.

He was expected instead to urge Obama to put the elusive quest for Israeli-Palestinian peace on the back burner and make the campaign to curb Iran's nuclear ambitions a more urgent priority. Israel, uneasy over Obama's overtures to engage with Tehran, has not ruled out military strikes if diplomacy fails.

Netanyahu's effort to shift the focus of stalled peace talks away from tough issues such as borders and the future of Jewish settlements could mean a rocky road ahead in traditionally strong U.S.-Israeli relations.

It puts him at odds with Obama, who has endorsed the goal of Palestinian independence, a cornerstone of U.S. policy for years, and has pledged to keep peacemaking high on his agenda.

Underscoring the obstacles Obama faces, an Israeli official confirmed that contractors had been asked for plans to expand a settlement in the occupied West Bank, a project the United States has already condemned as problematic to peace moves.

Despite diverging views, Obama and Netanyahu, meeting for the first time since both took office, were expected to tread carefully in talks that could set the tone for a still-emerging U.S. strategy to revive stalled peace talks.

Obama sees engagement in Israeli-Palestinian peacemaking -- in contrast to the Bush administration's largely hands-off approach -- as crucial to repairing the U.S. image in the Muslim world and to convincing moderate Arab states to join a united front against Iran.

There have been signs Obama hopes to sway Netanyahu with the prospect of normalized ties between Israel and all Muslim countries, but such a comprehensive deal would require extraordinary diplomatic work by the United States.

IRAN LOOMS

The Iranian issue loomed large over the White House talks.

With Israeli leaders mostly skeptical of Obama's efforts to engage Iran diplomatically, Netanyahu planned to stress Israel's growing concerns about Tehran's nuclear ambitions.

There is a sense of urgency on our side, Netanyahu's national security adviser, Uzi Arad, told reporters on the eve of the White House meeting, calling a nuclear-armed Iran a threat to Israel's existence.

Israeli Foreign Minister Avigdor Lieberman said earlier this month that world powers should take action against Iran if it does not curb its nuclear activities by August.

Israeli leaders have left open the option of pre-emptive strikes on Iran, which maintains it is enriching uranium for civilian power generation.

But any call by Netanyahu to put a time limit on diplomatic overtures -- a departure from Bush's strategy of isolating the Islamic republic -- could pose a challenge to Obama's Iran strategy.

Obama, in a Newsweek magazine interview, said he hoped to persuade Netanyahu that the diplomatic approach was best.

Netanyahu is under pressure from rightist political allies to pursue settlement building and resist pressure to pursue the peace strategy of former Prime Minister Ehud Olmert for a Palestinian state alongside Israel.

In the West Bank, a Jewish settlement official on Monday said contractors had taken steps to begin expanding the enclave of Maskiot in the Jordan River valley with the addition of 20 homes. He said a decision in principle to go ahead was made last year by Israel's Defense Ministry.

Netanyahu has said Arab concern over a nuclear Iran presents an unprecedented opportunity to pursue regional peace between Israel and Muslim states. But Obama sees progress on negotiations for a future Palestinian state as a way to line up Arab states against Iran.

With Hamas Islamists in charge of the Gaza Strip, Netanyahu has said peace efforts with Western-backed Palestinian President Mahmoud Abbas, who meets Obama on May 28, should focus on economic, security and political issues. Palestinians reject that approach as a ploy to deny them statehood.

Israel Barack obama