JERUSALEM, March 31 (Reuters) - US President Barack Obama wants Israel to freeze construction in East Jerusalem for four months in exchange for an attempt to renew stalled Israeli peace talks with Palestinians, an Israeli newspaper said on Wednesday.

Washington hopes such a deal could persuade Palestinians to renew direct negotiations rather than indirect proximity talks, as had been planned, the Haaretz daily said, quoting an unnamed Israeli political source.

A spokesman for Israeli Prime Minister Benjamin Netanyahu, reached by telephone, declined to comment.

Asked about the report, Nabil Abu Rdainah, a top aide to Palestinian President Mahmoud Abbas, said: What is required is firstly a freeze to settlement in Jerusalem and in the rest of the West Bank before a return to any negotiations, direct or indirect.

Obama has also pressed Israel to stop building in East Jerusalem, which it captured along with the West Bank in a 1967 war and annexed.

Officials said he asked Netanyahu in talks last week in Washington to introduce some unspecified goodwill gestures to help persuade Palestinians to renew peace negotiations suspended since December 2008.

Israel regards all of Jerusalem as its capital, a claim that has not won international recognition. Palestinians want East Jerusalem as the capital of the state they hope to establish in the occupied West Bank and Gaza Strip.

Israeli Foreign Minister Avigdor Lieberman told Israel's Maariv newspaper at the weekend Washington's main demand of Israel was freezing construction in most of the Jewish neighborhoods, listing four in the East Jerusalem area.

Lieberman called the demand completely unreasonable and said it had not been accepted by any senior cabinet ministers.

Netanyahu, who has thus far resisted U.S. pressure on the Jerusalem issue, has held two inconclusive cabinet consultations on Washington's proposals, and officials have said these discussions would continue.

The Haaretz newspaper said a consensus among ministers, who last met on Sunday, was that Israel would avoid declaring an outright building freeze in Jerusalem, and seek instead to achieve a quiet understanding on the issue.

Netanyahu's differences with the Obama administration on Jerusalem have put him in a political bind, as he seeks to avoid harming Israel's critical security ties with Washington while keeping his pro-settler ruling coalition from breaking apart.

The Israeli leader excluded East Jerusalem from a 10-month moratorium he declared, under U.S. pressure, in November on new housing starts in West Bank settlements. (Additional reporting by Ali Sawafta in Ramallah) (Writing by Allyn Fisher-Ilan; Editing by Dominic Evans)