The United States on Tuesday suspended its demand for Israel to renew a freeze on Jewish settlement building in the West Bank, throwing Palestinian-Israeli peace talks into deeper disarray.
President Barack Obama presided over the relaunch of direct negotiations in Washington in September, only to see them bog down within weeks when an Israeli settlement moratorium expired and the Palestinians refused to come back to the table.
The White House and the State Department disclosed Tuesday that weeks of efforts to broker a new settlement freeze and resuscitate the peace talks had gone nowhere.
"We have been pursuing a moratorium as a means to create conditions for a return to meaningful and sustained negotiations," State Department spokesman Philip Crowley told reporters in a televised press briefing 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.
In Ramallah, a Palestinian official reacted to the US announcement by accusing the right-wing government of Israeli Prime Minister Benjamin Netanyahu of wrecking chances for peace.
"By refusing to give a clear answer to the United States, Israel has refused to freeze settlement building and to give a chance to peace in the region," the official said, requesting anonymity.
Crowley promised continued efforts to try and unblock the Middle East peace process and said Israeli and Palestinian negotiators would visit Washington next week to work towards that end.
"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.
He indicated that the two sides would engage indirectly with each other rather than directly in talks brokered by US officials.
Crowley's remarks suggest Palestinian-Israeli peace talks have returned to the point where they were in May when US envoy George Mitchell began shuttling between the two sides in so-called "proximity," or indirect negotiations.
Crowley said there "may well be a change in tactics" as the United States still believes that there must "be some kind of direct negotiation" to make progress on the core issues.
The core issues are Israel's security, the borders of a future Palestinian state, the fate of Palestinian refugees and the status of the holy city of Jerusalem, which both sides claim as their capital.
At the high-profile relaunch of talks in September after a 20-month hiatus, Netanyahu and Palestinian leader Mahmud Abbas both vowed to seek agreement on the core issues within a year.
The two leaders were supposed to meet every two weeks subsequently, but their direct talks ran aground at the end of September after the expiry of a 10-month Israeli ban on settlement building in the West Bank.
The Palestinians say they will not negotiate while Jewish settlers build on land they want for a future state. Abbas is insisting not only on a settlement freeze in the West Bank, but also in east Jerusalem, which Palestinians want for their capital.
In an attempt to revive direct talks, the United States had offered Israel a package of incentives including 20 F-35 fighter planes, worth three billion dollars (2.3 billion euros), in exchange for a new three-month ban.
Washington also committed not to seek an additional freeze and pledged to provide Israel with diplomatic support, including vetoing anti-Israel resolutions at the United Nations.
The package would also have allowed Israel to continue building in east Jerusalem, over the objections of the Palestinians.
In Jerusalem, Israeli Defense Minister Ehud Barak sounded pessimistic notes.
"Currently, the discussions are totally blocked. The Americans are too preoccupied with North Korea and the WikiLeaks revelations," Barak said.
The White House was more upbeat, but admitted the settlement talks had gone nowhere.
"There were different expectations among the various interested parties on matters like terms of the moratorium, the issues to be negotiated during the moratorium and what would happen after the moratorium," a senior official said, speaking on condition of anonymity.
"We believe that both sides are committed to achieving a two-state solution to resolve the core issues," the official added.
"We believe the goal is possible, is necessary and both sides have said that they want the US involved."