WASHINGTON, July 6 (Reuters/Matt Spetalnick) - President Barack Obama and Israeli Prime Minister Benjamin Netanyahu will meet on Tuesday seeking to show they have turned the page on an unusually rocky period in relations between Washington and its close ally.

Visiting the White House for fence-mending talks, Netanyahu will get a warmer welcome than he did in March when Obama kept him at arms' length in what was widely perceived as a snub over Israeli settlement policy.

Expectations for a major breakthrough are low.

But the meeting, postponed a month ago after a deadly Israeli raid on a Gaza aid flotilla, could be a test of whether Obama can overcome recent tensions with Netanyahu and work together to restart long-suspended direct peace talks between Israel and the Palestinians.

Obama is not likely to risk another diplomatic clash with Netanyahu with pivotal US congressional elections looming in November and pro-Israel sentiment strong among American lawmakers and voters.

Carefully choreographing what some analysts have dubbed a make up visit, Obama's aides have arranged press coverage at the end of the Oval Office talks, when every bit of body language is sure to be scrutinized. Afterward, the leaders will attend a White House luncheon.

Last time, there was no photo-op and no meal for Netanyahu, whose visit marked a low point in his relationship with Obama.

The rare chill in relations has thawed recently with Obama shifting to a gentler tone and Netanyahu offering conciliatory gestures. The two also have found common ground opposing Iran's nuclear program, which will be high on Tuesday's agenda.

At the White House, Netanyahu plans to assure Obama he wants to upgrade indirect talks with the Palestinians to direct negotiations, something the president sees as vital to the goal of creating a Palestinian state alongside Israel.

I am ready to meet (Palestinian) President (Mahmoud) Abbas today and tomorrow and the next day at any place, Netanyahu said last week.

MORATORIUM TO EXPIRE?

While Obama's advisers insist differences have been narrowed, Palestinian leaders say the slow-moving US-mediated talks have not yet made enough progress to justify the start of face-to-face negotiations.

A big question hanging over the fragile peace process is whether Netanyahu will extend beyond September a 10-month Israeli moratorium on new housing starts in Jewish settlements in the occupied West Bank, a limited freeze agreed upon only under pressure from Obama.

But such a move would put strain on Netanyahu's governing coalition, which includes a key far-right party.

Benny Begin, a rightist minister in Netanyahu's inner cabinet, appeared to rule out extending the moratorium.

The prime minister said a few times that the status of settlements would be determined only in a final-status peace agreement with our neighbours, he told Israel Radio.

Such agreement, as everybody knows, is not imminent at all. In the meantime, we have to ensure that our settlements are developed, he added.

Obama's aides insist the talks with Netanyahu will not dwell on time-sensitive specifics but will focus instead on broader peacemaking goals.

Pushing the peace process forward is central to Obama's agenda for repairing U.S. relations with the Muslim world, which have been strained by wars in Iraq and Afghanistan.

Netanyahu's visit was originally scheduled for June 1. That meeting was scrapped after the Israeli raid on a Gaza aid ship on May 31, which sparked an international outcry and prompted Israel to ease its land blockade of the Hamas-ruled territory.

Obama is expected to urge Netanyahu to consider further steps to loosen the flow of humanitarian aid and civilian goods to Gaza where he has deemed the situation unsustainable.

But Obama has limited room to maneuver in pressuring Israel. Hoping to stave off big losses by his Democrats in the mid-term elections, he wants to avoid giving Republicans ammunition to sow public doubt about his commitment to Israel.

The administration has worked hard to soften its tone toward Netanyahu after a diplomatic blowup sparked by Israel's March 9 announcement -- during a visit by US Vice President Joe Biden -- of plans to build 1,600 more settler homes in an area of the West Bank it annexed to Jerusalem.

For his part, Netanyahu is keen to show the Israeli public that relations with their superpower ally are back on track but will be reluctant to offer major concessions that would anger pro-settler parties in his fragile coalition.