JERUSALEM, (AFP) – Israel on Friday raised the possibility of a compromise just ahead of the scheduled ending of curbs on settlement construction that threatened to derail three-week-old Middle East peace talks.

Just two days before the conclusion of the 10-month partial moratorium on settlement construction in the occupied West Bank, the government indicated it was willing to cut a deal acceptable to the United States and the Palestinians, who both want an extension of the restrictions.

“Israel is prepared to reach a compromise acceptable to all parties to consider extending the freeze on construction, provided that the freeze will not be total,” a senior government official said.

Prime Minister Benjamin Netanyahu was “making intensive efforts to reach such a compromise before the expiration of the moratorium on September 26,” he told AFP, asking not to be named.

This marked a significant shift for Israel which was previously adamant the restrictions would not be renewed even though Palestinian president Mahmud Abbas had threatened to walk out of the peace talks over the issue.

US President Barack Obama on Thursday firmly restated his conviction the moratorium should be extended.

Abbas welcomed Obama’s remarks, “especially his call for a halt of the settlement activities and for the creation of a Palestinian state.”

“We also welcome the huge efforts exerted by President Obama and his administration to push forward the peace process,” he told AFP.

The US administration also said on Thursday it was proposing “ideas” to Israeli and Palestinian negotiators in a bid to break the stalemate over settlements.

“You have stated positions on both sides that are incompatible and we are offering our ideas on how we might see movement on both sides that could allow us to continue to move forward,” State Department spokesman Philip Crowley said.

In recent days, Netanyahu has discussed the issue with US Secretary of State Hilary Clinton, German Chancellor Angela Merkel and other leaders, the Israeli official said.

The Obama administration had already played a key role in getting the two sides back to the negotiating table on September 2 after a 20-month pause in the peace talks.

The previous round of direct negotiations collapsed when Israel launched a devastating military offensive on the Hamas-run Gaza Strip in December 2008.

Abbas and Netanyahu did not appear to have made any progress towards narrowing their differences during talks last week in Egypt and in Jerusalem attended by Clinton.

In a bid to resolve the row, US officials have suggested a three-month extension to the moratorium during which time the two sides could agree on borders, which could neutralise the settlements dispute, a senior Palestinian official said.

The Palestinians and US negotiators want a complete halt to settlements while Israel is insisting on continuing to build in major blocs it hopes to keep in any final peace accord.

Abbas said he was “not opposed to a settlement freeze for a month or two.”

“If Israel stops the settlement and shows goodwill, then we can reach an agreement on borders and security, and agreement on other matters like the status of Jerusalem, water and settlements will follow,” he told AFP this week.

The United States and the European Union have urged Israel to extend the moratorium.

The international community considers Israeli settlements in the West Bank, including annexed east Jerusalem, to be illegal. The settlement issue has long been among the thorniest in the peace process.

Some 500,000 Israelis live in more than 120 Jewish settlements across the West Bank and east Jerusalem, territories expected to form the bulk of a future Palestinian state.