America's top diplomat is in the Middle East trying to get the peace process back on track.  Robert Berger reports from the VOA bureau in Jerusalem.

Palestinian President Mahmoud Abbas, right, meets US Secretary of State Condoleezza Rice in the West Bank city of Ramallah, 15 Jun 2008

Israeli settlement expansion topped the agenda as Secretary of State Condoleezza Rice met separately with Israeli and Palestinian leaders.  Rice used exceptionally harsh language to condemn Israel's announcement on Friday that it plans to build 1,300 new homes in disputed East Jerusalem, on land the Palestinians claim for their future capital.

"I do believe and the United States believes that the actions and the announcements that are taking place are indeed having a negative effect on the atmosphere for negotiation," said Condoleezza Rice. "And that is not what we want.  We should be in a position of encouraging confidence, not undermining it."

Rice spoke at a news conference with Palestinian President Mahmoud Abbas in the West Bank town of Ramallah.

"We believe that settlement is the highest hurdle on the road of our political endeavors," said Mahmoud Abbas. "With the continued expansion and building of settlements the more tough the hurdle would become."

Israel says it has the right to build anywhere in Jerusalem because it will remain the capital of the Jewish state in any final peace agreement.

Despite the obstacles, Rice said both sides remain committed to the peace process.

"We are all devoted to and believe that it is possible to establish the agreement between the Palestinians and the Israelis for the establishment of a Palestinian state by the end of the year," said Mahmoud Abbas.

But that goal is in doubt because in addition to the settlements, gaps are wide on core issues like Palestinian refugees and the status of Jerusalem.

Israeli Prime Minister Ehud Olmert is also embroiled in a corruption scandal that could force him to step down.  In the meantime, Mr. Olmert is widely seen as too weak to close a peace deal involving major territorial concessions to the Palestinians.