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updated 6/23/2011 3:36:51 PM ET 2011-06-23T19:36:51

The Palestinians are ready to drop their demand for a complete Israeli settlement construction freeze and resume peace talks if Israel accepts a U.S. proposal calling for a broad Israeli withdrawal from territories captured in 1967, a senior Palestinian official told The Associated Press on Thursday.

The official said the Palestinians have presented their ideas to American mediators visiting the region in recent days in an effort to get long-stalled negotiations moving again. He spoke on condition of anonymity because he was discussing a sensitive diplomatic proposal.

Israeli officials refused to comment. Israeli Prime Minister Benjamin Netanyahu has not accepted President Barack Obama's formula.

The Palestinian official said the Palestinians have agreed to start talks based on Obama's recent proposal to base the border between Israel and a future Palestinian state on the lines Israel held before capturing the West Bank, east Jerusalem and Gaza Strip in 1967, with agreed swaps of territory. The Palestinians claim all three areas for their future state.

Israel withdrew from Gaza in 2005, but still controls the West Bank and east Jerusalem. Prime Minister Benjamin Netanyahu says a return to the 1967 lines would leave Israel with indefensible borders.

Obama did not call for a full withdrawal but suggested the land swaps to allow for modifications.

Obama relaunched peace talks last September at a White House ceremony, only to see them break down three weeks later with the expiration of a limited Israeli settlement freeze. The Palestinians have refused to return to negotiations while Israel continues to build homes on Jewish enclaves in territories claimed by the Palestinians.

Israel wants talks without preconditions and insists the settlement issue should be on the negotiating table.

Interactive: A history of talks (on this page)

In the absence of negotiations, Palestinian President Mahmoud Abbas has embarked on a reconciliation process with the rival Islamic Hamas, which rules Gaza, and pledged to ask the U.N. for a unilateral recognition of Palestinian independence.

Neither effort is going smoothly.

Therefore, the official said the Palestinians would tolerate Israeli construction on existing settlement projects already under way, as long as Israel commits to not approving new housing projects. Such conditions are similar to the settlement construction moratorium that expired in September.

On Thursday, Netanyahu said the two sides would not be able to resolve their conflict until the Palestinians accept the existence of a Jewish state as the homeland of the Jewish people.

"It begins with six simple words: I will accept the Jewish state," Netanyahu told Israel's third annual Presidential Conference, "That's what will change history."

The Palestinians have resisted Netanyahu's repeated call to recognize Israel as the Jewish homeland. Essentially that would require them to accept that most Palestinian refugees from the war surrounding Israel's 1948 creation would be denied repatriation in Israel.

A solution of the refugee problem is one of the most difficult issues dividing Israel and the Palestinians.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Interactive: A history of talks

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