RAMALLAH, West Bank, Dec 8 (Reuters) - Palestinian leaders said on Wednesday that Israeli obstinacy made Washington give up on efforts to halt Jewish settlement and questioned whether the United States could ever help them attain independence.

Senior Palestinian official Yasser Abed Rabbo said that with its bid to revive direct Israeli-Palestinian negotiations now at a dead end, the United States was proposing a return to indirect talks to try to unblock a peace process in deep crisis.

U.S. envoy George Mitchell will head back to the region next week for another round of diplomacy, State Department spokesman P.J. Crowley said as the administration of President Barack Obama indicated it intended to continue its peace push.

Senator Mitchell will go back to the region next week to consult, Crowley said in Washington.

U.S. Secretary of State Hillary Clinton is scheduled to meet with chief Israeli negotiator Yitzhak Molho in Washington at 9 a.m. (1400 GMT) on Thursday.

Officials in Washington have said the United States was weighing a move to separate discussions with both sides -- a return to the indirect talks conducted for much of last year along shuttle diplomacy lines, as in past US mediation bids.

The Palestinians had demanded a halt to Israeli settlement building in the occupied West Bank and East Jerusalem before agreeing to resume direct talks in pursuit of the establishment of a sovereign Palestinian state alongside Israel.

Under US stewardship, the Israeli and Palestinian leaders held three rounds of talks in September. But the Palestinians pulled out when Israel's 10-month freeze on West Bank settlement building expired at the end of that month.

Israel says a settlement freeze was a precondition that never existed in previous stages of the 20-year-old peace process and blames Palestinian President Mahmoud Abbas for taking too long to sit down for talks after Prime Minister Benjamin Netanyahu announced the moratorium in November 2009.

US CREDIBILITY HIT

Israel has settled the territory extensively since 1967, when it captured and occupied the West Bank and the Gaza Strip. The international community for the most part deems the settlements illegal.

Settler leaders claim a biblical right to the West Bank.

The US announcement giving up efforts to halt Jewish settlement was a big setback for Obama, who believes settling the Middle East conflict is a vital national security interest. When launching the talks in September, Obama said he hoped to have a deal signed in a year.

Samih Shabib, a political scientist at Birzeit University near Ramallah, said the failure meant the US's credibility has become very weak among the Palestinians and Arabs.

Abed Rabbo, a senior aide to Abbas, told Voice of Palestine radio that US policy had changed because of Israeli obstinacy and rejection.

If the United States could not get Israel to halt settlement for a limited period, how would it be able to make Israel accept a balanced solution on the foundation of international resolutions and the two-state solution?, he asked.

US officials said Israel had been willing to extend the moratorium on West Bank construction but not in and around East Jerusalem -- land it views as part of its capital.

Hamas, the Islamist group hostile to Israel, said American backtracking indicated the failure of the peace process. It called on its rivals in the Palestinian Authority to halt negotiations once and for all.

Hamas, which controls the Gaza Strip, believes the Palestinians must use armed resistance in their struggle with Israel. Abbas opposes such violence. In the West Bank, where he oversees the Palestinians' limited self-rule, the risk of another Palestinian Intifada, or uprising, is seen as remote.

Israeli government spokesman Mark Regev said Israel remained determined in its commitment to continue the current effort to achieve a historic peace agreement with the Palestinians.

European Union foreign affairs chief Catherine Ashton said through a spokeswoman that the Israelis have not been in a position to accept an extension of the moratorium.

Our views on settlements are clear: they are illegal under international law and an obstacle to peace, she said.