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President Obama's administration is retreating on a contentious issue in the Middle East. The president wanted Israel to freeze settlement building in the West Bank - territory that could someday be claimed for a new Palestinian state. Israel restrained construction for a time, but then allowed it to resume. And peace talks have been derailed.

Now the administration says it will stop trying to get Israelis to agree to a moratorium on settlements. We start our coverage with NPR's Michele Kelemen.

MICHELE KELEMEN: The peace talks that the U.S. launched in September broke down just a few weeks later over the settlement issue. And since then the Obama administration has been working hard to entice Israeli Prime Minister Benjamin Netanyahu to renew a settlement moratorium so that Palestinians would return to talks.

Israelis say they were offered diplomatic guarantees and new military hardware, but in the end the U.S. and Israel couldn't finalize a deal. A State Department official now says that the U.S. will no longer seek a moratorium as a way to revive direct peace talks. Analyst Robert Danin of the Council on Foreign Relations says the administration has lost time.

Mr. ROBERT DANIN (Council on Foreign Relations): I don't see this as necessarily a retreat, but as a shift in tactics and maybe it's wise at this point, because they realize that the way in which they were going was not going to produce results. And the price that they were going to potentially pay to get a settlement moratorium was just far disproportionate to what it would have provided them.

KELEMEN: Danin says it's not optimal, but the U.S. for now will be back to what's called proximity talks.

Mr. DANIN: You don't have the parties talking to one another directly. You have them talking through the United States, and indeed you have the parties in essence negotiating bilaterally with the United States.

KELEMEN: Administration officials seem to think they can make progress on the borders of a future Palestinian state and deal with some of Israel's security concerns in such talks. One official said privately that the U.S. still thinks the two sides can reach a framework agreement on all the core issues next year. Woodrow Wilson Center Scholar Aaron David Miller says for now the administration doesn't have much to show for its effort.

Mr. AARON DAVID MILLER (Woodrow Wilson Center): The administration, after 20 months of focusing on a freeze, has no freeze, no negotiations, no process to launch serious negotiations, and right now no prospects for an agreement. So it's not a happy ending, at least at this stage.

KELEMEN: But that's not the end of the story, according to Miller, who was an adviser to Republican and Democratic secretaries of state on Arab-Israeli negotiations.

Mr. MILLER: You know, I don't think they've given up. I think the president really will continue to be seized with this, both because he believes it's important and because others, just about everybody else, tells him repeatedly how important it is. The problem is that the options right now aren't great.

KELEMEN: Israeli and Palestinian negotiators are expected to come to Washington next week. U.S. officials haven't given any indication of their negotiating strategy going forward. Secretary of State Hillary Clinton is to give a policy speech on the Middle East at the Brookings Institution on Friday.

Michele Kelemen, NPR News, Washington.

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