JERUSALEM, April 27 (Reuters) - Israeli Prime Minister Benjamin Netanyahu said on Tuesday that Palestinian President Mahmoud Abbas intends to renew stalled peace negotiations, suggesting a breakthrough after months of deadlock.

In a speech to party faithful of his right-wing Likud faction in Tel Aviv, Netanyahu suggested he hoped peace talks could resume as soon as next week.

Netanyahu also said he planned to travel to Egypt on Monday to meet Egypt's President Hosni Mubarak, a longtime mediator of Middle East peace efforts.

The Israeli leader's remarks came as Washington was ramping up efforts to resume peace negotiations stalled since the three-week Gaza war began in December 2008, with hopes of organising indirect or proximity talks between the sides. Netanyahu said he had heard with satisfaction that Abbas intends to renew the talks. I will be very glad if this will indeed by carried out next week.

He did not say where he had heard Abbas say he was ready for new talks, nor was it clear exactly what venue was envisaged, or whether any progress toward a deal was in sight.

Abbas has long insisted Israel freeze Jewish settlement building before the talks resume, and had rejected a temporary hiatus in construction ordered by Netanyahu last year as insufficient.

Netanyahu said he would travel to Egypt to meet with President Mubarak who is doing a lot to renew peace, and reiterated that Israel was committed to a real peace process.

Palestinian sources said on Sunday that Mitchell, who visited last week, had proposed a compromise for restarting talks in which the Palestinians would begin indirect meetings.

In return for holding such contacts, dubbed proximity talks, Washington offered an unwritten commitment to assign blame publicly to any party that took action compromising the negotiations, the sources said.

The formula appeared to envisage a situation in which Israel could quietly delay implementing housing projects in and around East Jerusalem -- construction which Washington has said could jeopardise peacemaking -- without declaring a freeze.

Jerusalem is a key issue in the conflict. Israel sees the city as its indivisible capital. It captured Arab East Jerusalem in the 1967 Middle East war and annexed it in a move that is not recognised internationally. Palestinians want the city to be capital of a future state.