JERUSALEM, July 4 (Reuters) - Israel's defence minister will meet the Palestinian prime minister on Monday, the first meeting between the two politicians since February and the first sign of progress in indirect, US-mediated talks.

The meeting between Ehud Barak and Salam Fayyad comes ahead of talks in Washington on Tuesday between Israeli Prime Minister Benjamin Netanyahu and President Barack Obama, who wants the two sides to move to direct peace negotiations.

Barak's office said on Sunday he and Fayyad would discuss various issues related to the relations between Israel and the Palestinians. It did not say where the meeting would take place.

Obama's Middle East envoy George Mitchell has been mediating between Israel and the Palestinians since May with the aim of bringing them to the same table to resolve their differences over the creation of a Palestinian state in the West Bank and Gaza Strip.

On Friday, an Obama adviser dismissed suggestions that little progress had been made, saying the gaps have been narrowed thanks to Mitchell's mediation.

Netanyahu says he wants to move to direct negotiations as soon as possible. Palestinian leaders say the talks have not yet made enough progress to justify face-to-face negotiations.

The Palestinians say they want clear answers from Israel on issues of borders and security. That entails shaping the frontiers of a future Palestinian state -- including territorial swaps with Israel -- along lines that existed before the 1967 war in which Israel captured the West Bank and Gaza Strip.

For Palestinians, it also means Israeli troops and roadblocks in the West Bank are replaced by international forces in key areas. Another thorny issue is Israeli settlement activity in the West Bank and East Jerusalem, which the Palestinians want as a future capital.

In November, Netanyahu announced a limited, 10-month moratorium on new settlement projects in the West Bank. The freeze does not include Jerusalem, which Israel considers its eternal and indivisible capital.

Netanyahu and Obama may explore extending beyond September the 10-month Israeli freeze on new housing starts in West Bank Jewish settlements.