The Palestinian leadership accused the US of caving in over Israeli settlements after Hillary Clinton, the Secretary of State, praised Israel for making concessions.

Having failed to force Binyamin Netanyahu, the Israeli Prime Minister, to meet US demands for a total settlement freeze, Mrs Clinton switched tack during a one-day visit to Jerusalem when she called on both sides to resume peace talks.

“What the Prime Minister has offered in specifics of a restraint on the policy of settlements . . . is unprecedented,” Mrs Clinton said.

She did not give details of the concessions but even under the Oslo peace talks in the 1990s Israel never halted the expansion of settlements. The first serious reversal came in 2005 when Ariel Sharon forced thousands to leave the Gaza Strip.

The comments by Mrs Clinton were in contrast to the previous stance of the Obama Administration, which has pressured Israel to halt all settlement construction. In May, after President Obama’s first meeting with Mr Netanyahu, Mrs Clinton said that the US “wants to see a stop to settlements — not some settlements, not outposts, not natural growth exceptions”.

Mr Netanyahu has been unmovable, saying that the nearly 500,000 settlers in the West Bank and east Jerusalem could not be expected to stop building facilities as their communities expanded. He has however proposed limiting construction to about 3,000 homes that have been approved already by the Israeli authorities in the West Bank. He has not considered any halt in east Jerusalem, which was captured with the West Bank and Gaza by Israel in the Six Day War.

Mrs Clinton claimed yesterday that halting settlement building had never been a pre-condition to resuming talks. Her claim did little to pacify the Palestinian Authority in the West Bank, whose leader, Mahmoud Abbas, is struggling to maintain credibility.

Nabil Abu Rudeinah, a spokesman for Mr Abbas, said: “The negotiations are in a state of paralysis, and the result of Israel’s intransigence and America’s back-pedalling is that there is no hope of negotiations on the horizon.”

Ghassan Khatib, a Palestinian Authority spokesman, said: “Calling for a resumption of negotiations despite continued settlement construction doesn’t help because we have tried this way many times.

“Negotiations are about ending the occupation and settlement expansion is about entrenching the occupation.”

The Palestinians insisted that only a total freeze would allow any new round of talks, prompting a call by Mr Netanyahu for them to “come to their senses and enter the peace process”. The Palestinians said that the settlements were filling territory that they had claimed as their future state.

Israeli officials said that they would consider a six-month freeze on settlements, but the US has been pushing for at least a year.

The Israeli Foreign Minister, Avigdor Lieberman, reiterated that even if the Palestinians could be lured back to talks, their goal of an independent state would not be on the table.

“If you are asking if within the next few years it would be possible to achieve comprehensive peace with the Palestinians to end the conflict, then no,” Mr Lieberman, a hardline nationalist, told Israeli Army Radio.

He has said in the past that any deal struck soon would be an interim one only — another condition rejected by the Palestinians.

Salam Fayyad, the Palestinian Prime Minister, announced his intention to build up the economy and infrastructure to a level where, within two years, the West Bank would have achieved de facto statehood. With the Gaza Strip still under the control of Hamas, Palestinian hopes for a united leadership remain elusive.

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