Late on Tuesday, US officials admitted top-level efforts to coax Israel into imposing new curbs on West Bank settlement construction had gone nowhere, prompting Palestinian president Mahmud Abbas to declare a crisis in peace efforts but delighting Israeli hardliners.

Without a new freeze, the Palestinians have refused to negotiate, effectively deadlocking direct peace talks that opened on September 2 only to run aground just weeks later when building resumed in the settlements.

"We have been pursuing a moratorium as a means to create conditions for a return to meaningful and sustained negotiations," US State Department spokesman Philip Crowley said in New York.

"After a considerable effort, we have concluded that this does not create a firm basis to work towards our shared goal of a framework agreement."

Speaking in Athens, the Western-backed Palestinian leader said: "There is no doubt that there is a crisis."

Top Abbas aide Yasser Abed Rabbo blamed the failure of US efforts on Israeli recalcitrance.

"The policy and the efforts of the US administration failed because of the blow it received from the Israeli government."

But a spokesman for Israeli Prime Minister Benjamin Netanyahu said Washington's announcement marked a welcome acknowledgement by President Barack Obama's administration that freezing construction was not the way to achieve peace.

"We said from the outset that settlements were not the root of the conflict and that it was only a Palestinian excuse for refusing to talk," Nir Hefetz said.

Israeli and Palestinian officials are expected to visit Washington next week for separate talks with the Americans on ways to keep the peace process alive, Crowley said.

The United States has been trying for weeks to convince Netanyahu to impose a new moratorium on settlement construction in the occupied West Bank.

A 10-month freeze expired on September 26, shortly after the launch of new peace talks -- the first direct ones in nearly two years.

Crowley suggested that the two sides could return to some form of indirect, or "proximity" negotiations similar to those held between May and September.

"We will continue to try to find ways to create the kind of confidence that will eventually, we hope, allow them to engage directly," he said.

Tony Blair, envoy for the Middle East diplomatic Quartet of the European Union, Russia, the United Nations and the United States, told journalists in Jerusalem the decision did not mean the collapse of peace efforts.

"Despite this decision, there is no doubt at all in my mind that there remains a fixed determination on behalf of the United States, the Quartet ... the Israeli government and the Palestinian leadership to make sure that we find a way to get credible and serious negotiation back on track again."

The European Union said it regretted Israel's rejection of a new freeze.

"We note with regret that the Israelis have not been in a position to accept an extension of the moratorium as requested by the EU, the US and the Quartet," spokeswoman Maja Kocijancic said.

Palestinian officials said that Abbas would hold talks with Egyptian President Hosni Mubarak on Thursday before deciding on his next move.

And Arab League chief Amr Mussa said member foreign ministers would meet in Cairo on Saturday or Sunday to "discuss future Arab action" in light of the US announcement.

The Israeli right expressed delight at the government's refusal to give in to pressure from its main ally.

Deputy parliament speaker Danny Danon praised Netanyahu for rebuffing US calls for another "damaging and pointless" freeze.

The head of the Yesha Council of settlers, Danny Dayan, said Washington's admission of defeat showed that Israel could stand up to its main ally and get away with it.

"Israel has held out and not given in to the Americans' bizarre and extreme demands and the sky has not fallen on our heads," he told army radio.

At the other end of the political spectrum, Minorities Minister Avishay Braverman of the Labour party called for an end to its increasingly uneasy membership of Netanyahu's right-leaning coalition, public television reported.

The Islamist movement Hamas, which controls the Gaza Strip, said US failure to secure any concession from Israel vindicated its longstanding opposition to the policy pursued by its rivals in Abbas's Fatah party.

"Fatah has lost its gamble of counting on Washington as the US position on the Palestinian question is always utterly dependent on Israel," Hamas spokesman Fawzi Barhum said.

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