Israel is lowering expectations for a breakthrough in U.S.-sponsored peace talks with the Palestinians in 2008.  Robert Berger reports from the VOA bureau in Jerusalem.

Israeli PM Ehud Olmert attends a meeting of his Kadima party at the Knesset, Israel's parliament in Jerusalem, 28 Jul 2008

Prime Minister Ehud Olmert says he does not believe that Israel and the Palestinians can achieve their stated goal of a peace agreement by the end of the year.  He told the Israeli parliament's Foreign Affairs and Defense Committee that the main sticking point is the status of Jerusalem.

The United States has been pushing for a peace agreement before President Bush leaves office in January.  But officials at the closed-door meeting with Mr. Olmert quoted him as saying that there is "no practical chance" of resolving the Jerusalem issue that quickly.

Palestinian analyst Mahdi Abdel Hadi believes Israel is not prepared to share Jerusalem, but is trying to dictate a solution.

"The question of today, if you want to share it, [is] on what basis, what is the law, what is the system?  Are we talking about international law, are we talking about an agreement backed and supported by the international community?  Or we are talking about [an] imposed Israeli agenda on the city of Jerusalem, take it or leave it?"

A major sticking point is sovereignty over the site Jews call the Temple Mount, the holiest place in Judaism, where the biblical Temples once stood.  Today it is home to the Mosque of al Aksa, the third holiest place in Islam.

Israeli analyst Hillel Frisch says that while the religious and ideological issues are difficult, an even bigger problem for Israel is security in the Arab neighborhoods of Jerusalem.

"If we would withdraw from East Jerusalem, it would mean that basically the terrorist organizations would set up camp just, literally, a stones throw away from the Jerusalem that most Jews reside in," said Frisch.

Mr. Olmert said the gaps are not as wide on other key issues, such as final borders and the future of Palestinian refugees.  But with the end-of-the-year deadline approaching, Jerusalem is emerging as the deal breaker.