updated 9/13/2009 12:40:27 PM ET 2009-09-13T16:40:27

Israeli Prime Minister Benjamin Netanyahu, speaking on the eve of a key meeting with the White House Mideast envoy, said Sunday that differences remain with the U.S. over resuming peacemaking with the Palestinians.

Netanyahu delivered the assessment before flying to Cairo for talks with Egypt's president, a main mediator in efforts to restart peace talks. On Monday, he is scheduled to meet George Mitchell, President Barack Obama's envoy.

The Obama administration, with Mitchell as the point man, has been pressing Israel to declare a halt to construction in its West Bank settlements. Palestinians claim the West Bank as part of their future state.

Netanyahu, whose Likud Party is ideologically committed to expanding settlements and holding on to the West Bank, has been bargaining for a compromise that would allow some building to continue.

Settlements viewed as obstacle
Palestinians are insisting they will not resume peace talks until Israel completely stops its West Bank construction. Palestinians charge that settlements are a main obstacle to creating their own state.

Navigating a thin line between the conflicting demands of his supporters at home on the one hand, and the U.S. and Palestinians on the other, Netanyahu and his government last week approved construction of several hundred new apartments in West Bank settlements and several hundred more in a Jewish neighborhood in east Jerusalem.

At the same time, his office indicated openness to a limited freeze. Media reports say Israel might agree to halt construction for nine months, but would insist on completing the 2,500-3,000 housing units already begun.

Speaking at the beginning of Israel's weekly Cabinet session, Netanyahu held out hope for a deal with Mitchell.

"There is still work to do," he said. "I hope that we will succeed in reducing the gaps; maybe we will bridge them, so that we can move the process forward."

Mitchell delivered a similar message Sunday.

"While we have not yet reached agreement on any outstanding issues, we are working hard to do so, and indeed the purpose of my visit here this week is to attempt to do so," he told Israel's ceremonial president, Shimon Peres.

In a speech to party activists last week, Netanyahu pledged to take steps for peace, but he ruled out allowing a Hamas enclave in the West Bank. "We will not be suckers," he said.

‘Early recognition’ of the state
One possible scenario was published Sunday by the Israeli daily Haaretz. It quoted unnamed European diplomats as saying negotiations would concentrate on drawing a border between Israel and a Palestinian state. In two years, a Palestinian state would be recognized, though major outstanding issues, like the fate of Palestinian refugees, would remain to be worked out.

The paper said this would be "early recognition" of the state. Palestinians have rejected the concept of a temporary or transition state, fearing that it would become the permanent solution after talks bogged down yet again.

Israeli and Palestinian officials denied the Haaretz report.

In Egypt, Netanyahu was expected to talk to Mubarak about possible gestures the Arab world might offer in exchange for a settlement freeze.

Netanyahu also was expected to discuss Egypt's attempts to mediate a prisoner swap between Israel and the Hamas militant group.

Hamas, which controls the Gaza Strip, is demanding hundreds of Palestinian prisoners in exchange for an Israeli soldier captured more than three years ago.

On Sunday Abbas' government fired the Hamas mayor of the West Bank town of Qalqiliya. The stated reason was mismanagement, but the move was seen as another skirmish in the battle between Abbas and Hamas.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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