Q+A: Waiting for Mitchell: what divides U.S., Israel?

(Reuters) - U.S. Middle East envoy George Mitchell is due to return to the region soon to try to end a rift with Israel over Jewish settlement expansion in the occupied West Bank and press for a resumption of peace talks.

Here are some questions and answers about the issue.

WHAT DOES THE UNITED STATES WANT? U.S. President Barack Obama has called for a settlement freeze as outlined in a 2003 peace "road map," including cessation of "natural growth" construction that Israel defines as accommodating the needs of expanding settler families. Washington last week denied an Israeli media report that it agreed to Israel continuing to build some 2,500 housing units. Washington says Mitchell will hold talks with Israeli Prime Minister Benjamin Netanyahu soon, but has set no date. Israeli Defense Minister Ehud Barak, who met Mitchell in New York on June 30 and London on July 6, has said the envoy would be in the region in July.

WHAT DOES ISRAEL WANT?

Barak has publicly raised the possibility Israel might temporarily refrain from starting new building projects -- while continuing many under way -- in settlements in return for steps toward a regional peace agreement, including progress on Arab states normalizing relations with Israel. Western officials say such measures could include permission by Arab states in the Gulf for Israeli passenger and civilian cargo aircraft to fly over their territory and the opening of Israeli interest sections and communications links. Western diplomats say, however, that Arab countries have been cool to the ideas.

WHAT DO THE PALESTINIANS WANT?

Palestinian President Mahmoud Abbas has written to Obama saying all settlement activity must stop and there can be no compromise on the issue, a Palestinian negotiator says. Palestinians say U.S.-backed peace negotiations with Israel cannot resume until settlement expansion ends.

Palestinians, who number about 2.5 million in the West Bank and 1.5 million in the Gaza Strip, want the land that the settlers have claimed as part of a state and say settlements threaten any prospect of real sovereignty. Palestinians fear settlements will isolate formerly Arab-ruled East Jerusalem, which Palestinians want as their capital, from the West Bank and also split that territory into northern and southern zones.

Netanyahu, who heads a right-leaning coalition, says he aims to continue construction in existing settlements, many of which have extensive undeveloped land, but will build no new ones.

WHO ARE THE SETTLERS?

Close to half a million Jews live on West Bank land captured by Israel in 1967, including Arab East Jerusalem. Some live in "outposts" not recognized by Israeli law but most are in more than 100 official settlements -- some with tens of thousands of residents -- under Israeli rule, including areas annexed to Jerusalem. Many are motivated by cheaper housing costs. Others see themselves as pioneers exercising what they believe is Jews' God-given right to lands they call Judea and Samaria. Barak has said he plans to dismantle some two dozen unauthorized "outposts" after consultations with settlement leaders.

(Writing by Jeffrey Heller in Jerusalem; Editing by Alastair Macdonald and Louise Ireland)