Israel brushes aside U.S. pressure over statehood deal

By Adam Entous

JERUSALEM (Reuters) - Israel sought on Monday to lower U.S. expectations for any deal with the Palestinians this year, brushing aside pressure over settlements and calling for decisions on Jerusalem's future to be deferred.

U.S. Secretary of State Condoleezza Rice ended her sixth trip to the region this year with no sign of progress in nudging both sides toward a peace deal by the end of 2008.

She held three-way talks with Israeli Defense Minister Ehud Barak and Palestinian Prime Minister Salam Fayyad before making a surprise visit to Beirut.

Disputes over Jewish settlement expansion on occupied West Bank land and a corruption scandal that may topple Israeli Prime Minister Ehud Olmert have undercut U.S. efforts to reach a statehood deal before President George W. Bush steps down in January, officials in the region said.

Faced with the prospect of early elections should Olmert fall, Israel's chief negotiator, Foreign Minister Tzipi Livni, has balked at producing a document that could spell out proposed concessions on borders and other issues, Israeli and Palestinian officials said.

Israeli officials were also cool to suggestions, backed by the Palestinians, that Rice hold more intensive three-way meetings with Livni and her Palestinian negotiating partner, former Prime Minister Ahmed Qurie.

A senior Palestinian official said Olmert and Livni "insisted on bilateral meetings".

Israeli sources said Livni favored a joint announcement that the negotiations will continue after Bush leaves office in 2009, though her position puts her at odds with Olmert and Rice who favor a written agreement this year.

JERUSALEM DELAY

"The goal is still to reach an agreement with the Palestinians by the end of Bush's term," Mark Regev, Olmert's spokesman, told reporters during a visit to Israel's border with the Hamas-controlled Gaza Strip.

But Regev added that Olmert believed it would be "difficult" to reach agreement on the sensitive issue of Jerusalem in that timeframe. He said any joint document should instead look at ways of moving forward with negotiations over the Holy City.

Israel captured Arab East Jerusalem in the 1967 Middle East War and annexed it in a move that has not won international recognition. Palestinians want East Jerusalem to be the capital of the state they seek in the occupied West Bank and Gaza Strip.

"You could have an agreed framework -- methodology on how to move forward -- so Jerusalem would be mentioned but mentioned in the sense of how to move forward," Regev said.

"We don't want to see that issue (Jerusalem) torpedoing the chances of getting a document," Regev said, adding that Jerusalem was the most divisive issue facing negotiators.

Commenting on Regev's remarks, Yasser Abed Rabbo, a member of the Palestinian negotiating team and a top aide to Abbas, said: "There won't be an agreement without Jerusalem. The Israelis know that very well."