Israel has so far resisted Obama's call to halt all construction in settlements in the West Bank [AFP]

George Mitchell and Netanyahu ended a second round of talks on Wednesday with no sign of a deal on the West Bank freeze needed to resume peace talks with the Palestinians.

"The prime minister and Senator Mitchell had a good meeting this morning," a  statement issued by Netanyahu's office said.

"They decided to continue their discussions ... after Senator Mitchell returns to Israel from visits to countries in the region."

The decision to extend discussions has kept open the possibility of a meeting next week between Netanyahu, Barack Obama, the US president, and Mahmoud Abbas, the Palestinian president, on the fringes of the UN general assembly meeting in New York.

Informal meeting

Although Abbas has made a resumption of peace negotiations with Israel, suspended since Israel's war on Gaza in December, conditional on halting illegal settlement activity, some Palestinian officials have said he might agree to the meeting as the talks would not be characterised as formal negotiations.

Netanyahu has so far resisted Obama's call to halt all construction in settlements in the West Bank and occupied Arab East Jerusalem.

He said he would be prepared to limit temporarily the scope of building work but projects under way would continue.

About 500,000 Israelis live in the West Bank and in Arab East Jerusalem, territory captured in a 1967 war, alongside about three million Palestinians.

Obama also wants Arab countries to take steps towards recognising Israel.

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