RAMALLAH/JERUSALEM - Israeli and Palestinian officials suggested on Wednesday progress had been made towards resuming negotiations following Egyptian-Israeli talks on a year-long deadlock in the Middle East peace process.

The cautiously upbeat comments followed talks in Cairo on Tuesday between Egypt's President Hosni Mubarak and Israeli Prime Minister Benjamin Netanyahu.

Palestinian President Mahmoud Abbas has refused to relaunch peace talks until Netanyahu halts all Jewish settlement building in the Israeli-occupied West Bank, and has rejected Israel's partial, 10-month freeze.

A diplomatic source told Reuters U.S. President Barack Obama's Middle East envoy George Mitchell would return to the region next month for a new push to resume negotiations.

Mitchell had earlier shuttled between the sides with no concrete signs of progress for the past year.

In the West Bank, an aide to Abbas told Reuters there would be movement in the near future.

The region will see important political activity in the next two weeks, said Nabil Abu Rdainah. The Israeli position is not yet clear enough to the point of re-starting negotiations.

Mark Regev, a spokesman for Netanyahu, replied that the Israeli government hopes we will indeed see the resumption of talks with the Palestinians in the near future. We are ready.

Neither side would divulge the details of any new development that might be forthcoming or what Netanyahu may have told Mubarak, a long-time mediator of the conflict.
'A LOT OF EFFORT'

An Israeli official speaking to Reuters on condition of anonymity said there would soon be a lot of effort made to get things back on track. Everyone wants this to happen.

Israel did not want to say at this time what steps it was willing to take, the official said, but added that in the framework of a package we are willing to play our part.

On his return to Jerusalem, Netanyahu told members of his Likud party the time has come to renew the peace process -- a statement he has made repeatedly in recent weeks in appeals to Abbas to return to the negotiating table.

Palestinian media in the Israeli-occupied West Bank prominently reported comments by Egyptian Foreign Minister Ahmed Aboul Gheit that Netanyahu on Tuesday spoke during the talks about positions that go beyond, in our estimate, what we have heard from the Israeli side in a long time.

I cannot say that a settlement is closer. I cannot say whether Netanyahu has come to Egypt to change his positions ... but he is moving forward, Aboul Gheit added.

Apart from the issue of Jewish settlements, Abbas has refused to relaunch peace talks until Netanyahu, a right-wing leader who took office in March, makes clear his terms of reference for resuming the negotiations.

Netanyahu ordered the 10-month restriction on Jewish settlement construction on November 25, a move Abbas says is insufficient to meet the Palestinians' bottom-line demand.

Abbas was due to return to his government capital, Ramallah, on Thursday and deliver a speech marking the 45th anniversary of the foundation of his Fatah movement. He was also due to take a tour of Arab capitals including Cairo immediately afterwards.
(Additional reporting by Erika Solomon in Ramallah, Marwa Awad in Cairo; writing by Douglas Hamilton; Editing by Charles Dick)

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