Jerusalem  - Israeli Prime Minister Benjamin Netanyahu and US envoy George Mitchell are expected to continue talks early Wednesday after failing Tuesday to finish an agreement on a temporary halt to Israeli construction of West Bank settlements.

The negotiations are ongoing with only a week left until a hoped- for meeting of Netanyahu and Palestinian President Mahmoud Abbas with US President Barack Obama, who is seeking to relaunch the long- stalled Mideast peace talks.

"We are working hard to narrow the gaps between us," Netanyahu spokesman Mark Regev told the German Press Agency dpa following the premier's two-hour meeting with Mitchell Tuesday in Jerusalem. "The discussions on settlements will continue tomorrow, but, obviously, a package for the renewal of peace negotiations is necessary."

Mitchell met later with Abbas for two-and-a-half hours in the West Bank city of Ramallah, following a meeting with Palestinian Prime Minister Salam Fayyad.

"We hope to bring this stage in our efforts to positive conclusion in the coming weeks," Mitchell said after meeting with Abbas.

"We have been asking all the parties to take responsibility for peace and to take action in order to conclude an encouraging context for the close resumption and early conclusion of negotiations."

Washington hopes an agreement on a settlement freeze will allow Obama to host a three-way summit with Netanyahu and Abbas on the sidelines of UN General Assembly meetings later this month in New York, with the goal of restoring peace negotiations.

Obama has demanded that Israel completely halt all settlement construction in the West Bank. Netanyahu replied that Israel would build no more new settlements but would continue construction inside existing ones to accommodate population expansion, or so-called natural growth.

Abbas endorsed the US demand and said he would not renew suspended peace talks with Israel, nor meet with Netanyahu, unless Israel complies.

After the Ramallah meetings with Mitchell, Palestinian chief negotiator Saeb Erekat reiterated the Palestinian position that there will be no meeting with Israeli officials or resumption of negotiations without a total Israeli freeze on all settlement activities including "natural growth."

He said a three-way meeting in New York was not discussed in Abbas' meeting with Mitchell.

"We did not talk about the meeting," Erekat said. "The issue is not meeting for the sake of meeting. There is a goal for the peace process and that is how to end this occupation."

Erekat said Abbas told Mitchell that there are obligations on Israel to stop settlement activities.

"There are no compromises on settlements," Erekat said. "We are ready to meet our obligations and resume talks from where they stopped. But Israel has to meet its obligations and until now it has not met any of its obligations in the road map."

Israeli and US officials have been meeting regularly to find a solution to the dispute.

Netanyahu's office said the Israeli premier plans to leave September 23 for New York, one day before his scheduled address to the United Nations General Assembly. It said in a statement that no meeting with Abbas had been scheduled in New York, but that Netanyahu was willing to fly earlier "in case such a meeting takes place."

Speaking to a parliamentary committee in Jerusalem, Netanyahu reiterated that he would not accept the US demand for a complete freeze of construction in West Bank settlements and confirmed that he had informed Washington he would continue to build 2,500 housing units already under construction, as well as building 450 additional units.

Construction in East Jerusalem would also continue, Netanyahu said, repeating that he did not regard Jewish neighbourhoods in the city - built within the municipal boundaries but on occupied West Bank land - as settlements.

Israeli President Shimon Peres, meanwhile, said that the chance for the proposed Obama-Netanyahu-Abbas meeting should not be missed. He told diplomats in Jerusalem that negotiations could begin with the Palestinians, while at the same time understandings could be implemented on the ground. (dpa)