Q+A: Peace talks and Israeli settlements

(Reuters) - The Obama administration faced Arab ire on Monday after softening its calls for a freeze to Israeli settlement on occupied West Bank land where Palestinians seek statehood.

Here are some questions and answers to explain the change in the U.S. tone and how it might affect Israeli-Palestinian peacemaking efforts:

WHENCE THE SHIFT FROM "FREEZE" TO "RESTRAINT?"

Keen to restart negotiations along the lines of a 2003 peace "road map" sponsored by the United States, President Barack Obama initially demanded a freeze on settlements after he took office in January. But after months of shuttle diplomacy, he was able to produce no more than a handshake meeting between Israeli and Palestinian leaders in September. At that meeting he called instead for "restraint." U.S. Secretary of State Hillary Clinton Saturday endorsed Israel's view that continued settlement construction should not be a bar to resuming peace talks -- contradicting Palestinian President Mahmoud Abbas, who says he will not sit down to negotiate again without a "freeze." She described an Israeli offer to slow down such projects as potentially "an unprecedented restriction on settlements," though she made clear it fell short of U.S. expectations.

U.S. officials have insisted in public comments that Obama was not backing away from his original stance, but some have acknowledged privately that the administration had to be pragmatic about the political realities in Israel if it wanted to move forward with long-stalled peace negotiations.

Washington may also be giving ground to Israel because of its lack of success in persuading Arab states to make goodwill gestures toward Israel that would buttress the Palestinian track of peace-making.

WHAT HAS ISRAEL OFFERED, AND WHY?

Israeli Prime Minister Benjamin Netanyahu, in line with previous governments, has ruled out a total halt to construction in settlements, citing a need to accommodate "natural growth" of the communities -- notably families having more children.

The Netanyahu proposal noted by Clinton would limit building for now to some 3,000 settler homes already approved by Israel. Israeli officials have said Israel has offered a nine-month deal on such restraint, while Washington has been pushing for longer.

Netanyahu has also pledged not to found any new settlements or expropriate private Palestinian land for Israeli projects.

Successive Israeli governments have staked out major settlements for annexation under any future accord with the Palestinians, raising domestic skepticism over the relevance of a construction halt. Netanyahu is also beholden to nationalist coalition partners who see the West Bank as a Jewish birthright.

Israel refuses to discuss any change to settlement policies in East Jerusalem, which it captured along with the West Bank in the 1967 war and which, with adjacent, annexed West Bank areas, it considers part of its capital -- a status not recognized abroad.

WHAT MIGHT THE PALESTINIANS DO?

Clinton's statements drew unusually forthright Palestinian recrimination, one Abbas aide accusing the United States of "back-pedaling" and saying he saw no prospect for talks soon.

Yet President Abbas, favored by the United States and Israel in the face of the rival Palestinian Islamist movement Hamas and dependent on Western aid, may have to stay the course.

That could just mean more deadlock. But Abbas did negotiate with Netanyahu's predecessor, Ehud Olmert, in 2007 despite continued Israeli settlement-building. He also agreed, albeit reluctantly, to that handshake meeting with Netanyahu at the United Nations in New York in September, overseen by Obama.

It remains unclear how hard the Obama administration would push Abbas, who has little room to maneuver. Unless Obama's envoys can shift the Palestinians, the chance of restarting formal talks before the end of the year looks dim.

The biggest challenge to Abbas could come from Hamas, which will argue that U.S. lenience on the settlements has driven another nail into the coffin of Abbas's credibility. This would likely come to a head around January 24, the date for a Palestinian election which the president called but Hamas rejects. Hamas took over the Gaza Strip in 2007 and enjoys support in the West Bank. The election campaign could trigger a new round of violence. Hamas -- which won a 2006 parliamentary election only to find itself shunned by the West -- could also try to upstage Abbas abroad, arguing that the U.S.-led refusal to engage with it should be abandoned in parallel to the forgiving new tone on settlements.