Ramallah, West Bank: A US envoy concluded talks with Palestinian and Israeli leaders on Friday without agreement on how to keep alive peace negotiations that are on hold due to a dispute over Jewish colony building.

US envoy George Mitchell said Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas had agreed to keep talking indirectly.

He has been shuttling between the leaders for two days.

US President Barack Obama's drive to end the six-decade old conflict appeared to be faltering just a month after his administration launched the direct talks in Washington.

Abbas said he will pull out of the talks unless Israel extends its 10-month freeze on new building in Jewish colonies in the occupied West Bank, which expired this week.

Palestinians say the growth of the colonies, on land that Israel has occupied since 1967, will render impossible the establishment of a Palestinian state in the West Bank and Gaza Strip — the stated goal of the peace talks.

Saeb Erekat, the chief Palestinian negotiator, said the United States would "continue in their bilateral efforts between us and the Israelis, each separately."

"The key to direct talks is in the hand of the Israeli prime minister. We hope that the Israeli leadership chooses peace and not [colonies]," he said after Mitchell's meeting with Abbas. Mitchell said he would depart for Qatar, then Egypt and Jordan.

Abbas has said he will take no final decision until the Arab League has discussed the issue.

Consultations postponed

There were indications on Friday that Monday's scheduled Arab League consultation would be set back to Friday at the request of US ally Egypt.

Obama has invested major political capital in a bid for a Middle East settlement within a year.

Israeli media suggested he was desperate to have Netanyahu agree to keep the talks alive by keeping colony construction frozen, and was furious at being rebuffed.