JERUSALEM -- The expiration of an Israeli moratorium on new construction in West Bank settlements threw fledgling Middle East peace talks into turmoil on Monday as Israel, the Palestinians and the U.S. scrambled to find a compromise that would keep the negotiations alive.

Curbs on new construction in settlements that had been in place for the past 10 months expired at midnight and Israel showed no sign of a new willingness to compromise on the issue. Palestinians regard settlement as a major obstacle to peace and have repeatedly said they will quit peace talks if Israel did not extend its restrictions.

Palestinian President Mahmoud Abbas has deferred a decision on whether to quit the talks until at least next Monday, when he will confer with the 22 member states of the Arab League at a special meeting on the issue. In Paris on Sunday, Abbas said there was only one choice for Israel: "Either peace or settlements."

Israeli Prime Minister Benjamin Netanyahu urged the Palestinian leader to keep negotiating while appealing to settlers to show restraint.

Under heavy U.S. pressure, Netanyahu persuaded his hardline Cabinet to agree to the slowdown last November in a bid to bring the Palestinians back to the negotiating table.

The Palestinians initially dismissed the gesture because it did not halt construction on thousands of settlement apartments already under way. They also objected because it didn't officially apply to east Jerusalem, the sector of the city the Palestinians claim for their future capital -- though there has been a de facto construction freeze there for months as well.

After U.S. mediated peace talks were launched earlier this month in Washington , the Palestinians demanded Israel maintain the curbs.

Netanyahu -- a settlement champion who just last year grudgingly endorsed the notion of a Palestinian state -- had faced heavy pressure within his pro-settler governing coalition to resume construction.

After a week of unsuccessful efforts, senior Israeli and Palestinian negotiators remained in the U.S. on Monday to continue negotiations with U.S. mediators.

"We remain in close touch with both parties and will be meeting with them again in the coming days," State Department spokesman P.J. Crowley said late Sunday. "We remain focused on the goal of advancing negotiations ... and encourage the parties to take constructive actions toward that goal."

Jewish settlers in the West Bank jubilantly marked the end of the construction curbs on Sunday, vowing to build thousands of new homes.

But early Monday, there were only scattered reports of preliminary construction.

In Ariel, a large settlement in the northern West Bank, bulldozers were clearing ground to make way for homes in a neighborhood that is planned for a group of residents evacuated during Israel's withdrawal from the Gaza Strip five years ago.

But settler leaders acknowledged said that construction activity would be minimal in the coming months, in part because banks and developers are reluctant to commit to new projects out of fear that building will be stopped again.