WASHINGTON, April 11 (By Arshad Mohammed/Reuters) - Middle East peace mediators on Wednesday criticized Israeli settlement building and called on donors to meet aid pledges to the Palestinians as they sought to revive moribund peace talks.

The so-called Quartet - the European Union, Russia, the United Nations and the United States - said they stood behind their Sept. 23, 2011, call for the parties to reach a peace deal by the end of 2012, an objective that seems increasingly remote.

While welcoming plans for the prime ministers of Israel and the Palestinian Authority to meet later this month, the group also cited the increasing fragility of developments on the ground and chided Israel for continued settlement activity.

The rare talks between the Israeli and Palestinian prime ministers may only sharpen differences that have brought peace negotiations to a standstill.

The Palestinians said they would give Israeli Prime Minister Benjamin Netanyahu a letter spelling out Israel's failure to implement a 2003 road map that includes a halt to settlement activity as a step towards achieving a final peace agreement.

An Israeli official said Netanyahu would reiterate, at the meeting with Palestinian Prime Minister Salam Fayyad, his call for peace talks to get under way without any preconditions.

U.S .-sponsored peace negotiations froze in late 2010 after Netanyahu rejected Palestinian demands that he extend the 10-month partial construction freeze he had imposed at Washington's behest to coax them into talks.

'INCREASING FRAGILITY'

The Quartet expressed concern about unilateral and provocative actions by either party, including continued settlement activity, which cannot prejudge the outcome of negotiations, the only way to a just and durable solution to the conflict, the group said in a written statement.

The group issued the statement after a meeting attended by U.S. Secretary of State Hillary Clinton, Russian Foreign Minister Sergei Lavrov, U.N. Secretary-General Ban Ki-moon and European Union foreign policy chief Catherine Ashton.

Some 500,000 Israelis live in the West Bank and East Jerusalem, which are home to 2.5 million Palestinians.

Most world powers deem the Jewish settlements illegal. Israel, which cites historical and biblical links to those areas, disputes that and has said it will keep major settlement blocs under any eventual peace accord.

In their statement, the Quartet urged donors to give $1.1 billion in aid to meet the Palestinian Authority's funding needs this year.

The Quartet noted with concern the increasing fragility of developments on the ground and called on the parties to work constructively together to take concrete steps to address the Palestinian Authority's fiscal challenges, preserve and build on the Palestinian Authority's institutional gains, and expand economic opportunities for the Palestinian people, it said.

The State Department said it had notified the U.S. Congress that it planned to release $58.6 million in U.S. economic aid to the Palestinian Authority, a move taken despite the objections of a senior Republican lawmaker.

An aide to Representative Ileana Ros-Lehtinen, who chairs the House Foreign Affairs Committee, said she still objected to the release of some of the money but that the Obama administration was overriding her hold.

The U.S. has given $3 billion in aid to the Palestinians in the last five years alone, and what do we have to show for it? Ros-Lehtinen said in a statement released by her office. Now the administration is sending even more. Where is the accountability for U.S. taxpayer dollars?