A day earlier, Netanyahu set out recognition of Israel as a Jewish state as his price for a renewal of a ban on construction in the occupied West Bank, seen as key to rescuing direct talks relaunched last month.

That demand was rejected out of hand by the Palestinians, who said it had "nothing to do with the peace process."

It was also widely criticised by Israeli politicians and commentators as a political ploy to sabotage the talks.

Netanyahu's proposal was little more than a "major diversionary ploy" cooked up in order to ease the crisis over the expiry of the freeze, the left-leaning Haaretz newspaper said in a scathing editorial.

Daily Yediot Aharonot said it was "implicit" from Netanyahu's speech that he was "going to do everything to torpedo the negotiations with the Palestinians at their current stage.

A renewal of the ban on Jewish settlement building on occupied Palestinian land, which expired on September 26, is largely seen as the key to reviving the moribund peace talks that began three weeks earlier.

Despite huge diplomatic pressure to reimpose the freeze, especially from Washington, Netanyahu has refused to do so, and Palestinian president Mahmud Abbas has said he will hold no further talks until the building stops.

"If the Palestinian leadership will unequivocally say to its people that it recognises Israel as the national state of the Jewish people, I will be ready to convene my cabinet and ask for another moratorium on building," Netanyahu said on Monday.

In Washington, State Department spokesman Philip Crowley stressed that both parties must "continue to create conditions for the direct negotiations to continue."

"We want to see those direct negotiations continue. There is a pause in the action as we kind of work through ... the issue of the moratorium and settlements," Crowley added.

"We hope that a formula can be arrived at, conditions can be established that allow the prime minister and the president, on behalf of their respective people, to make the political commitment to stay in this direct negotiation," he said.

But "ultimately it will be up to" Netanyahu and Palestinian president Mahmud Abbas to decide whether "they're getting enough" to keep the negotiations going.

The Palestinians formally recognised Israel on the eve of the 1993 Oslo Accords, but have rejected demands to recognise its Jewish character because that would effectively renounce the right of return for refugees from the 1948 Arab-Israeli war.

"When he demands that Abbas recognise Israel as a state of the Jewish people, he is offering assisted political suicide to the Palestinian leader," wrote Haaretz commentator Akiva Eldar.

Acknowledging that would be tantamount to "an up-front concession on the right of return," he said.

"Netanyahu understands that this is an asset that is too precious and too complex for the Palestinians to just give up for cheap -- namely, a temporary, partial freeze on construction in settlements."

For one senior member of Netanyahu's right-wing Likud party, the premier's manoeuvre had practically ruled out any renewal of a building freeze.

"His proposal pushes off a building freeze and talks with the Palestinians," the official told Yediot.

"Negotiations with the Americans are at an impasse, so Netanyahu came up with a proposal to show that he is willing to continue the talks, but it is clear that the Palestinians will not agree.

"Therefore, there is virtually no chance that the construction freeze will be reinstated," he said.

Recognition of Israel as a Jewish state has never been one of the core issues for resolving the conflict, but since Netanyahu came to power in 2009, it has become one of his key demands in any eventual peace deal.

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