Dec. 7, 2010 -- With Mideast peace talks at a standstill for months, the Obama administration was forced to change tactics and concede today that its first effort to broker an agreement between Israelis and Palestinians has faltered.

The United States gave up on its efforts to persuade Israel to freeze settlement construction in the West Bank and East Jerusalem in order to revive direct negotiations, according to U.S. officials briefed on the decision.

"After consultation with the parties, we have determined that a moratorium extension will not at this time provide the best basis for resuming direct negotiations," one official told ABC News, speaking on the condition of anonymity in order to discuss sensitive diplomatic matters.

Instead, the U.S. has decided to push both sides to discuss contentious core issues through U.S. intermediaries. To that end, negotiators from both sides have been invited to Washington next week where they will meet individually with U.S. officials, but not together.

The U.S. had hoped a settlement freeze would create the atmosphere for negotiations on the most contentious issues, but the process got bogged down as the parties haggled over what was meant to be a confidence building measure.

The Palestinians had demanded that Israel halt construction in the West Bank and East Jerusalem, where it plans to build its future capital, before it would return to the fragile peace talks.

Despite U.S. enticements, including the sale of fighter jets to Israel, the Israeli cabinet balked at an effort by Prime Minister Benjamin Netanyahu to extend a 10-month Israeli settlement freeze which expired in September, just weeks after talks began.

Arms Sale to Israel Off the Table

An Israeli official tells ABC News that the decision today was agreed upon together with the U.S. and that "the efforts remain to get down to direct negotiations."

The U.S. dispatched its Consul General in Jerusalem, Daniel Rubinstein, to brief Palestinian President Abbas on the news, rather than sending an official from Washington. That, officials suggested, was a sign that today's decision was a hasty one.

Secretary of State Hillary Clinton forecasted a new direction for the peace talks last Friday in an interview in Bahrain. She's expected to provide more details, and possibly new U.S. ideas to move the process forward, during a speech to the Brookings Institution's Saban Center Forum on Friday evening.