JERUSALEM (AP) — Both Israelis and Palestinians stand to gain by renewing U.S.- mediated contacts this week — the Obama administration's first sustained, on-the-ground attempt to bridge vast differences over what a Palestinian state should look like.

Israel's increasingly isolated hardline government will earn some international goodwill for finally talking about the contours of a Palestinian state. And the Palestinians say they have won assurances from the U.S. that Israel will avoid provocations in coming months, translating into what appears to be a de facto freeze on new housing for Jews in east Jerusalem, the Palestinians' hoped-for capital.

Even though they are indirect, the first Israeli-Palestinian peace talks in well over a year constitute the first concrete step forward in President Barack Obama's strategy to achieve peace in the Middle East.

Obama envoy George Mitchell is to meet with Israeli Prime Minister Benjamin Netanyahu on Wednesday and with Palestinian President Mahmoud Abbas on Friday, and will then shuttle between the two for up to four months. The U.S. hopes to build trust and prepare the ground for full-fledged negotiations.

But Israelis and Palestinians approach the talks with very different agendas.

Netanyahu has promised Mitchell that all issues can be discussed, but has made clear he mostly wants to talk about Israeli security needs. A key demand is that Israel maintain a long-term presence in the West Bank — a position the Palestinians reject outright.

Netanyahu is bound to raise Hamas rule in the Gaza Strip — one of the territories the Palestinians want for their future state — as a major obstacle to any peace deal. Abbas lost Gaza to the Islamic militants in a violent 2007 takeover, and neither the Palestinian leader nor his Western backers have come up with a plan for reclaiming Gaza. Netanyahu fears Hamas could one day take over the West Bank as well, putting the militants in easy firing distance of Israel's population centers.

The Palestinians want indirect talks to focus on borders, including the sensitive issue of partitioning Jerusalem. They hope this will lay bare wide gaps between the Israeli and U.S. positions and invite American pressure on Netanyahu.

Indeed, the outlines of a peace deal presented in 2000 by then-U.S. President Bill Clinton are closer to Palestinian demands than Netanyahu's positions.

Clinton proposed a Palestinian state in the West Bank, Gaza and east Jerusalem, captured by Israel in 1967. Israel would annex all Jewish settlements it built in east Jerusalem and some in the West Bank, but would have to give up an equal amount of land elsewhere in Israel.

In negotiations with Netanyahu's predecessors, the Palestinians agreed to the principle of a land swap, but want it kept to a minimum. Netanyahu has hardened Israeli positions, saying he won't give up an inch of east Jerusalem.

The Palestinians view the indirect talks as a warmup for what they hope will be the main event — an eventual U.S. dictate, in the form of an Obama peace plan.

Former Palestinian negotiator Nabil Shaath said direct negotiations made sense in the past, but not now.

"With Mr. Netanyahu, there is no way one-on-one talks can succeed," said Shaath, who remains a key adviser to Abbas. "Mr. Netanyahu needs serious intervention from other parties to nudge him on."

Israel wants to move to direct talks as quickly as possible and accuses the Palestinians of wasting time.

"We spoke to these people (the Palestinians) directly over the past 16 years, all the Israeli governments did, and all of a sudden they want indirect talks in an effort to push the Americans into the mix," Cabinet Minister Dan Meridor told Israel Army Radio this week.

But the Palestinians say there's no point in engaging directly unless Netanyahu freezes all settlement construction on war-won territories, already home to nearly half a million Israelis. Netanyahu refuses to do so, instead agreeing only to a West Bank construction slowdown that ends in September — at the time the indirect talks will conclude.

Netanyahu insists he is ready to reach a peace deal, though that trajectory seems certain to push him toward the Clinton formula and a showdown with his hawkish coalition.

The Israeli leader has sent conflicting signals about whether he is ready to go down that path.

Until this is sorted out, some talks are better than none, said former Israeli negotiator Yossi Beilin.

"It might be conducive to something, some partial steps, a better understanding, even a solution," he said. "People, when they enter negotiations, don't know where they can find themselves when these negotiations end."