Israel's Barak sees progress in US envoy talks

* No imminent announcement on Israeli settlement building

* "Very good, constructive" talks



(adds quotes, background)

By Adrian Croft

LONDON, July 6 (Reuters) - Israel's Defence Minister Ehud Barak said on Monday he and U.S. Middle East envoy George Mitchell had made progress in their second session of talks within a week on encouraging regional peace.

"I think there is progress. There's still a way to go," Barak told Reuters after the talks in London.

He said he expected no imminent announcement on Israeli settlement building, a key issue in the talks aimed at healing a rift with key ally the United States which has demanded a halt to all settlement activity.

However Barak, who last met Mitchell on Tuesday in New York, said he was optimistic about the chances of "preparing the ground for launching a major peace process".

A senior U.S. official has told Reuters that Washington is asking Arab governments whether they might ease sanctions on Israel if it freezes settlement on land Palestinians want for a state.

"I think the Americans are active on this issue," Barak said when asked to confirm this.

"While they are demanding from Israel steps and concessions in order to enable this regional peace effort to take off, they are approaching the Arabs as well and asking what they can contribute in terms of ... starting normalisation with Israel."

"We are looking and trying to find a formula (which) needs to show our readiness to be sensitive to the needs of others."

Barak described the talks with Mitchell as "a very good, constructive discussion" and said they had addressed all aspects of the Middle East peace process including the Palestinian, Syrian and Lebanese tracks.

He said they had discussed steps which could be taken to ensure "our slight differences regarding how to deal with the issue of settlements will ... be clarified but within the context of the need to push ahead the wider peace agreement." (Editing by Charles Dick)