Grappling with troubled peace process, Kerry urges Israeli settlement limits


* Kerry says "ups and downs" normal in any negotiations

* U.S. chief diplomat says confident progress possible

* Israeli-Palestinian friction over settlements

By Lesley Wroughton

BETHLEHEM, West Bank, Nov 6 (Reuters) - U.S. Secretary ofState John Kerry urged Israel on Wednesday to limit settlementbuilding in occupied territories to help push peace talks withthe Palestinians back on track.

Faced with grim Israeli and Palestinian assessments ofprogress in the talks, Kerry also appeared to slap down IsraeliPrime Minister Benjamin Netanyahu and warmly endorsedPalestinian President Mahmoud Abbas's commitment to seeking a two-state solution.

Friction over the talks has risen this past week on the backof Israeli plans, announced in tandem with its release of 26Palestinian prisoners, for some 3,500 new homes for Jewishsettlers in the occupied West Bank and East Jerusalem.

"Let me emphasise at this point the position of the UnitedStates of America on the settlements is that we consider be illegitimate," Kerry, reaffirming long-standing U.S.policy, said after discussions with Abbas.

Speaking to reporters in the West Bank town of Bethlehem,Kerry said it would be better if settlement building was"limited as much as possible in an effort to help create aclimate for these talks to be able to proceed effectively".

Palestinians have warned of a brewing crisis if Israelcontinues to assert that they had effectively agreed to turn ablind eye to the settlement campaign, in exchange for theprogressive release of 104 long-serving inmates.

Kerry dismissed Israeli suggestions there had been anunderstanding with the Palestinians about settlement expansionand stated "unequivocally" his belief that Abbas was "100percent committed" to peace talks.

"I want to make it extremely clear that at no time did thePalestinians in any way agree as a matter of going back to thetalks, that they somehow condone or accept the settlements," hesaid.

In Jerusalem earlier, Netanyahu had said the U.S.-brokerednegotiations had failed to make any real progress.

Speaking to reporters with a stone-faced Kerry at his side,Netanyahu accused the Palestinians of creating "artificialcrises" and of trying to "run away from the historic decisionsthat are needed to make a genuine peace".

Hours later, Kerry said Abbas "wants to try peace and heunderstands it requires compromise by all the parties".

The chief U.S. diplomat, citing "difficulties" in the peaceprocess, had said earlier in Jerusalem that the United Stateswas convinced that Netanyahu was also determined to pursue anend to the decades-old Israeli-Palestinian conflict.

"As in any negotiation there will be moments of up andmoments of down, and it goes back and forth," Kerry said.

Kerry, whose shuttle diplomacy helped to revive the talkslast July after a three-year break, has set a nine-monthschedule for an agreement, despite widespread scepticism.


Few details have emerged from the negotiations, held atunannounced times and at secret locations in line with pledgesto keep a lid on leaks.

But Palestinian officials have been airing frustration overa lack of movement on core issues such as the borders of aPalestinian state, security arrangements, the future of Israelisettlements and the fate of Palestinian refugees.

Abbas, in a speech on Monday, said that despite all themeetings nothing had changed on the ground.

Netanyahu said he hoped Kerry's visit would "help steer (thenegotiations) back to a place where we could achieve thehistorical peace that we seek".

Israeli settlements in the West Bank and East Jerusalem,territories it captured in the 1967 Middle East war and whichPalestinians seek for a state along with the Hamas Islamist-runGaza Strip, are considered illegal by most countries.

Israel cites historical and biblical links to the land,where more than 500,000 Israelis now live alongside 2.5 millionPalestinians.

In another development, Netanyahu said former IsraeliForeign Minister Avigdor Lieberman would return to the cabinetafter his acquittal in a corruption trial on Wednesday.

The right-wing powerbroker is a hardliner on Palestinianpeace talks, which he has said have no chance of succeeding.

In the Gaza Strip, Hamas spokesman Sami Abu Zuhri said anydeal reached by Abbas, a rival of the Islamist group, "would notbe binding on our people".

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