JERUSALEM, Sept 26 (Crispian Balmer/Reuters) - A 10-month freeze on Israeli settlement building in the occupied West Bank expires at midnight on Sunday, imperiling Middle East peace talks less than a month after their launch by US President Barack Obama.

Palestinian President Mahmoud Abbas repeatedly has said he will walk out of direct negotiations with Israel unless the partial halt to construction remains in place.

Obama has urged Israel to continue the freeze, but Israeli Prime Minister Benjamin Netanyahu, whose coalition is packed with pro-settler parties, has offered only to limit new building rather than order any extension to the moratorium.

Israeli and Palestinian officials met U.S. diplomats in New York at the weekend to try to find a solution and prevent the much-heralded negotiations from falling at the first hurdle.

We are doing everything we can to keep the parties in direct talks, State Department spokesman P.J. Crowley said, adding that U.S. special envoy on the Middle East, George Mitchell, met Abbas for 30 minutes on Saturday.

Some of Netanyahu's allies, including members of his own Likud party, are planning to mark the end of the freeze on Sunday by laying the cornerstone for new homes in the remote Revava settlement in the northern West Bank.


LOW EXPECTATIONS

More than 430,000 Jews live in well over 100 settlements established across the West Bank and East Jerusalem on land that was seized from the Arabs by Israel in a 1967 war.

The settlements are illegal under international law, although Israel disputes this. Palestinians say they will make it impossible for them to create a viable state and the issue is one of the core problems standing in the way of any peace deal.

The Israelis say many of the big settlement blocks will inevitably remain part of Israel and have suggested swapping land with the Palestinians to compensate for the lost territory.

Netanyahu says no other Israeli leader has been forced to suspend building work while entering peace negotiations and argues that the talks should continue without preconditions.

There were very low expectations attached to these latest efforts to end the decades-old conflict, but a failure to find a compromise over the freeze before even hitting core issues, such as the future of the settlements and the status of Palestinian refugees, could sink the peace process for years.

When U.S. efforts to broker a deal at Camp David collapsed in 2000, Palestinians rose up in what became known as the Second Intifada, with more than 500 Israelis killed in 140 Palestinian suicide bomb attacks from 2000 to 2007. At least 4,000 Palestinians were killed by Israeli forces.

The Israeli military says failure this time around would probably not lead to a generalized uprising, but it is braced for an increase in violence after months of relative calm.

Underlining the tensions, Palestinian youths confronted Israeli police in different Jerusalem districts for a fourth straight day on Saturday.

The disturbances were sparked on Wednesday by the death of an Arab man, shot dead by an Israeli guard protecting Jewish settlers in an Arab neighborhood.