The Middle East peace talks could be heading for an early collapse, with Israeli and Palestinian leaders unable to reach a compromise on Jewish settlement expansion.

Israel's 10-month freeze on new settlement homes in the West Bank expired at midnight local time.

As early as today, bulldozers are expected in many communities to begin the earthworks on hundreds, if not thousands, of new Jewish homes.

As the deadline loomed, Israel maintained it would not and could not extend the freeze.

But Israeli prime minister Benjamin Netanyahu sought to calm tensions, urging settlers to display "restraint and responsibility".

Palestinian president Mahmoud Abbas has so far stopped short of abandoning the peace talks as he had earlier threatened.

He now says he will consult Arab leaders next week before making a decision.

But Palestinian government spokesman Ghassan Khatib says it would be wrong for Palestinians to compromise any further.

"The negotiations are about ending the occupation in return for peace," he said.

"You cannot, while negotiating ending the occupation, allow one party to create unilateral facts on the ground by force that are about consolidating that same occupation".

The US has urged both sides to continue talking with or without a settlement freeze.

"We are going to urge and urge, and push throughout this day to get some kind of resolution," US president Barack Obama's top policy adviser, David Axelrod, told America's ABC News.

"These talks themselves are absolutely crucial - we're at a critical juncture in that region."

West Bank dilemma

For generations Palestinians have lived in the village of Dura al Qaria in the West Bank.

Jaber Bajes, 47, has a document from Ottoman times which he says proves his family owns 40 acres of land on a nearby hill.

"My family has owned this land for hundreds of years. We used it to farm grapes," he said.

But 32 years ago the same hillside was cordoned off by Jewish settlers who renamed it Bet El, or the "House of God", because it has special significance for Jews.

There are about 3,000 settlers at Bet El and one resident, Yehuda Pinsky, says the settlement is near the site where Jacob, in the Bible, dreamt of a ladder to heaven.

"And he received the promise in his dream that this land would be given to the Jewish people, the place upon which he was sleeping, and therefore that story has tremendous significance to the Jewish people," he said.

At least 300,000 Jews live in settlements like Bet El that have sprung up since Israel occupied the West Bank in 1967.