The Palestinians found themselves on the defensive Sunday, after Washington announced a new push to relaunch Mideast peace talks.

Aides to Palestinian President Mahmoud Abbas said there is no point negotiating while Israel expands settlements on land they want for their state. However, Abbas may find it difficult to justify turning down an offer of intense, top-level U.S. engagement in the talks and a two-year cap for a deal on Palestinian statehood.

Israeli Prime Minister Benjamin Netanyahu was quick to affix blame Sunday, with his office saying the Palestinians have been holding up peace efforts, while "Israel took significant steps to advance the process."

The statement came in response to comments made last week by U.S. envoy George Mitchell, who suggested in an interview with PBS television that the U.S. might use financial pressure, like withholding loan guarantees, if Israel doesn't make sufficient concessions in negotiations.

Mitchell is set to return to Israel and the West Bank this month. He told PBS he hopes to persuade Israelis and Palestinians during this trip that it is in their best interest to resume negotiations that broke down in December 2008.

"Our view is, let's get into negotiations, let's deal with the issues and come up with a solution to all of them, including Jerusalem, which will be exceedingly difficult, but in my judgment possible," Mitchell said.

The Obama administration initially demanded that Israel comply with an internationally mandated settlement freeze, but Netanyahu only agreed to a 10-month halt on housing starts in West Bank settlements. Construction for Jews continues in east Jerusalem, the sector of the city the Palestinians seek as their capital.

In the PBS interview, Mitchell portrayed the construction slowdown as an achievement, saying it was "less than what we asked, but much greater than what any (Israeli) government had done."

However, the U.S. lost credibility among Palestinians by backing down on settlements, an issue they see as an important test of Washington's resolve. Under the U.S.-backed "road map" plan, Israel is required to freeze all settlement construction.

Abbas wants a Palestinian state on the lands Israel occupied in the 1967 Mideast War — the West Bank, Gaza and east Jerusalem — but would agree to limited land swaps to accommodate some large Jewish settlements.

"We don't have any quarrel with Mr. Mitchell. We support his efforts and we want to be part of his success," said Abbas aide Saeb Erekat. "But people are asking me, `If the American administration cannot stop settlements, should we believe they can get the Israelis to accept the 1967 borders?"'

U.S. Secretary of State Hillary Rodham Clinton said Friday that once borders are agreed on, the dispute over settlements would be moot.

"Resolving borders resolves settlements, resolving Jerusalem resolves settlements," Clinton said. "I think we need to lift our sights and instead of being looking down at the trees, we need to look at the forest."

Netanyahu has not responded publicly to the latest U.S. initiative and was evasive when asked about his position by senior members of his Likud Party.

However, he reiterated that he will not agree to divide Jerusalem and will not permit Palestinian refugees to return to what is now Israel, according to Netanyahu aides who spoke on condition of anonymity because they are not authorized to give information about internal discussions.

Another Abbas aide, Nabil Abu Rdeneh, said there's no point in restarting talks unless Israel agrees to negotiate on the basis of the 1967 borders and is held to its obligations on settlements.

Also, he said, "If the Israelis say Jerusalem is off the table and not a single refugee (will return), who would dare to come and negotiate?"

In other developments Sunday, three members of the militant group Islamic Jihad were killed in an airstrike on Gaza, near Israel's border, the militants and Israel said.

Cross-border exchanges have escalated in recent days, as Israel retaliates for Gaza rocket attacks.

The Israeli military said there have been 15 rocket salvos so far this month, compared to eight in December. No Israeli casualties have been reported.