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The United States on Tuesday abandoned its effort to persuade Israel to freeze construction of Jewish settlements, officials said, dealing a blow to efforts to revive Israeli-Palestinian peace talks.

The decision marked a significant foreign-policy setback for U.S. President Barack Obama, who had appealed personally to Israel to extend its temporary construction freeze.

Palestinians have said they would not engage in any direct talks while Israelis build on territory seized in the 1967 Middle East war.

Two officials, who spoke on condition of anonymity, gave three reasons why the Obama administration decided to abandon the effort.

They said that while Israel was willing to extend the moratorium, it was not willing to freeze construction in East Jerusalem, something Palestinian officials had demanded as they want that part of the city as capital of their state.

Second, the officials said that unless they made sufficient progress during a temporary Israeli extension of the moratorium they could end up in the same place in three months – still struggling to keep the peace process alive.

Finally, they said there were some concerns about the size of the incentives the United States offered Israel – which Israeli sources said included 20 F-35 stealth fighters worth $3 billion – for only a temporary extension.

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