WASHINGTON, Jan 8 (Arshad Mohammed/Reuters) - The United States urged Israel and the Palestinians on Friday to resume peace talks and to focus immediately on borders and Jerusalem, suggesting this could break their deadlock over Jewish settlement building.

Speaking between meetings with the Jordanian and Egyptian foreign ministers, Secretary of State Hillary Clinton made a case for Palestinian President Mahmoud Abbas to drop his demand for a total settlement freeze before resuming negotiations.

Talks were halted a year ago over the war in the Gaza Strip and have not resumed, due largely to a Palestinian demand that Israel first impose a complete freeze on building in the West Bank and East Jerusalem and Israel's refusal to do so.

While repeating US concerns about Israeli construction in East Jerusalem, which the Palestinians want as the capital of a state, Clinton suggested the only way to deal with the issue was to get into talks.

Resolving borders resolves settlements. Resolving Jerusalem resolves settlements, she told reporters at a news conference with Jordanian Foreign Minister Nasser Judeh.

We need to lift our sights and instead of ... looking down at the trees, we need to look at the forest, she added.

The United States is making a fresh push to resolve the six-decade conflict, which U.S. officials believe destabilizes the region and fuels anti-American sentiment around the world.

George Mitchell, the US envoy for Middle East peace, travels to Europe next week and then to the region later in the month to see how it might be possible to restart talks.

A senior Arab official, who spoke on condition he not be named, said that going straight to the issue of borders in fresh talks was a way to circumvent the dispute over whether Israel would first freeze all settlement construction.

Because we got bogged down in heavy-duty discussions that got ... nowhere with settlements over the last few months, we are at an impasse and what is needed right now is to bypass this impasse, the official said.

You front-load borders in order to overcome this current obstacle over settlements, he added.

LETTERS OF ASSURANCE

In November, Israel said it would limit settlement building for 10 months to try to revive peace talks but excluded areas of the West Bank it annexed to its Jerusalem municipality after the 1967 war and building projects already under way -- falling short of the full freeze demanded by the Palestinians.

US and regional officials have said the United States is looking at what assurances it might provide the Palestinians and Israelis -- possibly in the form of letters -- that might help the parties get back to the table.

Clinton did not squarely address the issue of letters but said that ending the dispute would require guarantees and assistance from the United States and others.

She also repeated recent US statements that address the Palestinian desire for a peace deal based on borders prior to the 1967 war in which Israel occupied the West Bank, and the Israeli desire to retain major West Bank settlement blocs.

Clinton said she could envisage an accord that reconciles the Palestinian goal of an independent and viable state based on the 1967 lines with agreed swaps, and the Israeli goal of a Jewish state with secure ... borders that reflect subsequent developments and meet Israeli security requirements.

After meeting with Judeh, who said negotiations must be bound by a timeline, Clinton held talks with Egyptian Foreign Minister Ahmed Aboul Gheit, who said he hoped to create enough momentum to get peace talks going again.

Clinton and Judeh played down the idea that a suicide bomber who killed seven CIA employees in Afghanistan and was believed to have been recruited by Jordanian intelligence would hurt U.S.-Jordanian ties.

A Jordanian intelligence officer also died in the blast in southeastern Afghanistan.

Judeh also said Jordan's presence in Afghanistan, which he described as a mix of counterterrorism and humanitarian aid, will be enhanced and increased in the coming phase. (Reporting by Arshad Mohammed; Editing by Eric Beech and Peter Cooney)