Kerry says Israeli, Palestinian talks face difficulties

By Lesley Wroughton JERUSALEM (Reuters) - Secretary of State John Kerry said on Tuesday Israeli- Palestinian peace talks had run into difficulties but thought it still possible some agreement could be reached. Israeli and Palestinian officials painted a grim picture of the talks resumed under Kerry's tutelage in July after a long stalemate, saying they were going nowhere. "I come here without any illusions about the difficulties, but I come here determined to work," Kerry said after arriving in Israel ahead of talks on Wednesday with Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas. "We believe this is something that is possible and that it's good for all and can be achieved," Kerry told a remembrance service for late Prime Minister, Yitzhak Rabin, who was assassinated in 2005 by a right-wing Israeli opposed to his peacemaking with Palestinians. Few details have emerged from negotiating sessions between the two sides held at unannounced times and at secret locations in line with pledges to keep a lid on leaks. But both sides have been airing their frustration over a lack of progress on core issues such as the borders of a Palestinian state, security arrangements, the future of Israeli settlements in occupied territory and the fate of Palestinian refugees. "The Palestinians are not conducting the talks in good faith," Gideon Saar, the Israeli interior minister told Army Radio. "(The Palestinians) are locked in their positions and are showing no flexibility on their starting positions." Abbas, in a speech broadcast on Monday, said: "After all the rounds of negotiations there is nothing on the ground." On the sidelines of the peace talks, Israel has released half of the 104 Palestinian prisoners it pledged to free under a deal Kerry brokered to draw Abbas back to negotiations after a three-year break over Israeli settlement-building. SETTLEMENT BUILDING Israel says continued housing construction in settlements, in areas it intends to keep in any peace accord, was part of those understandings, which led to the return home of long-serving Palestinian inmates convicted of killing Israelis. In tandem with the release of 26 men last week, Israel pressed ahead with plans to build 3,500 more settler homes in the West Bank, a move widely seen as an attempt by Netanyahu to placate hardliners in his government. Nabil Abu Rdeineh, an Abbas spokesman, condemned the settlement campaign but said Palestinians remained committed to the negotiations. "What's required is a firm American position on Israel's provocations. Israel is continuing its policy of putting obstacles in front of the peace process - every time Kerry comes to the region they announce more settlements." Netanyahu accused the Palestinians of reneging on what he said was an agreed prisoners-settlements link. "If they can't even ... stand beside and behind the agreements that we had, that we release prisoners but we continue building, then how can I see that they'll actually stand by the larger issues?" he said in an interview with the Israel-based i24 television news channel. Abbas, speaking to his Fatah party on Sunday, voiced opposition to any such linkage, cautioning that "this equation could blow up the talks" and "there could be tensions soon". The settlements that Israel has built in the West Bank and East Jerusalem are considered illegal by most countries. Israel cites historical and biblical links to the areas, where about 500,000 Israelis now live alongside 2.5 million Palestinians. Israeli media on Monday reported that Kerry, who has given the sides nine months to reach a deal, plans in January to introduce a peace proposal if no major progress is made. Kerry told a news conference in Riyadh on Monday there was no such plan "at this point in time". But he has spoken of possible U.S. bridging proposals if no major progress is made. (Additional reporting by Ali Sawafta and Noah Browning in Ramallah and Maayan Lubell in Jerusalem, editing by Jeffrey Heller, Mark Heinrich and Barry Moody)