Negotiations between Israel and the U.S. government regarding Israel's renewal of a moratorium on West Bank settlement construction in exchange for an American letter of guarantees have failed.

A senior Israeli official said the talks between the two countries have reached a dead end, and that they will try to find new ways to advance the Middle East peace process.

Open gallery view Prime Minister Benjamin Netanyahu, U.S. President Barack Obama, and PA President Mahmoud Abbas. Credit: Bloomberg

A senior U.S. diplomat confirmed Tuesday that Washington was "ending the contacts to try and achieve another moratorium."

The diplomat, briefing reporters in Jerusalem on condition of anonymity, said "we reached the conclusion this is not the time to renew direct negotiation by renewing the moratorium".

He added that Washington would now seek to work toward a deal on security and border issues.

Direct peace talks have been on hold since Israel's 10-month freeze on new settlements expired at the end of September.

The Palestinians had refused to return to the negotiations until a new slowdown was in effect and U.S. officials had offered Israel a series of incentives in exchange for one.

Earlier on Tuesday, Defense Minister Ehud Barak said that contacts with the United States over a renewed moratorium on West Bank construction had been frozen in the wake of the WikiLeaks crisis and the tensions between North and South Korea.

"We have not reached understanding with the United States on how to resume the construction freeze," Barak told the Knesset Foreign Affairs and Defense Committee. "The negotiations with the Palestinians are of utmost priority for Israel and we must aspire to make them happen."

Barak said that Prime Minister Benjamin Netanyahu and Secretary of State Hillary Clinton had reached a gentlemen's agreement in their discussions over trading a freeze for certain American guarantees, adding that a deal was not yet "closed" and that the approval of Congress was still needed.

State Department Spokesman Philip Crowley responded to Barak on Tuesday, and expressed more optimism regarding negotiations.

"Our efforts are not suspended. We are having conversations even as we speak today with both Israeli officials, with Palestinian officials," said Crowley.

"I mean, the Israeli government itself has been fully occupied, understandably, in recent days, with the challenge of the fires. We remain determined to work with the parties on a path forward and, try to determine how best to advance the process back to direct negotiations and to ultimately a framework agreement."

"The process has not stopped. We obviously recognize that, we face a difficult obstacle, and we will continue to engage the parties on the way forward," he said.