The Middle East peace process lay in tatters Wednesday after Washington admitted defeat in its efforts to secure an Israeli freeze on settlement building, the Palestinians' condition for resuming talks.
Speaking 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 Mahmoud Abbas to declare a crisis in peace efforts but backslapping among Israeli hardliners.
Without a new freeze, the Palestinians have refused to negotiate, effectively deadlocking direct peace talks that opened on 2 September only to run into the ground 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 City.
"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," Crowley said.
Speaking on a visit to Athens, the Western-backed Palestinian leader said: "There is no doubt that there is a crisis."
A top Abbas aide said it was Israeli recalcitrance that had torpedoed US efforts to rescue the direct talks.
"The policy and the efforts of the US administration failed because of the blow it received from the Israeli government," Yasser Abed Rabbo told Voice of Palestine radio.
Israeli and Palestinian officials are now expected to visit Washington next week for separate talks with the US administration on ways to keep the peace process alive, Crowley said.
Israeli press reports said that US Middle East envoy George Mitchell would meet separately with Palestinian chief negotiator Saeb Erakat and his Israeli counterpart Yitzhak Molho in the coming days.
The United States has for weeks been trying to convince Israeli Prime Minister Benjamin Netanyahu to impose a new moratorium on settlement construction in the occupied West Bank.
A previous 10-month freeze expired on 26 September, shortly after the launch of new peace talks between Israel and the Palestinians -- the first direct negotiations in nearly two years.
It now appears the two sides are likely to return to some form of indirect, or "proximity" negotiations similar to those held between May and September, Crowley suggested.
"We will have further conversations on the substance with the parties, and 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.
But while the Palestinians expressed dismay at the US announcement, the Israeli right could hardly contain its delight.
"Israel has held out and not given in to the Americans' bizarre and extreme demands and the sky has not fallen on our heads," crowed Danny Dayan, head of the Yesha Council of settlers.
"Finally, Israel's credibility has been strengthened because it defended its own national interests and everyone who thought we wouldn't stand up to US pressure has been proved wrong," Dayan told Israel's army radio.
Most saw the announcement as a blow to US President Barack Obama and a victory for the Israeli premier.
The deputy speaker of parliament, Danny Danon, praised Netanyahu for rebuffing US efforts to force Israel into another "damaging and pointless" freeze.
He said Obama should realise that "the only way to justify his Nobel Peace Prize was by working closely" with the Israeli leader rather than weakening him.
And Netanyahu spokesman Nir Hefetz said the US administration had finally understood that freezing settlement activity 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," he told army radio.
Direct talks were launched on 2 September after a 20-month hiatus, with Netanyahu and Abbas vowing to seek an agreement within a year and pledging to meet once a fortnight.
But that arrangement collapsed three weeks later with the expiry of the 10-month Israeli moratorium on settlement building in the West Bank.