President Obama on Friday signaled that Israeli and Palestinian negotiators might begin their peace talks by focusing on the potential border between the two states in order to overcome conflicts over Israeli settlement growth on the West Bank.

Describing his efforts to persuade Israeli Prime Minister Binyamin Netanyahu to extend the 10-month moratorium, which expires this month, Obama told reporters during a news conference: "Ultimately, the way to solve these problems is for the two sides to agree what's going to be Israel, what's going to be the state of Palestine. And if you can get that agreement, then you can start constructing anything that the people of Israel see fit in undisputed areas."

The borders-first approach has drawn increasing attention from Middle East experts, and has been endorsed by such Arab figures as Egyptian President Hosni Mubarak.

Then-President George W. Bush angered Palestinians in 2004 when he gave then-Israeli Prime Minister Ariel Sharon a letter stating that Israel could expect to keep major settlement blocks as part as any peace deal, but increasingly officials think that identifying upfront the settlement areas Israel could keep would reduce settlements as a source of tension between the two sides.

Still, the most contentious area of any peace deal is likely to be the division of Jerusalem, where Israel has claimed Palestinian areas within its municipal boundaries and has surrounded the city with settlements. Jerusalem is expected to be the last item the two sides tackle. Other important "final status" issues include the right of return for Palestinian refugees, or at least compensation for the loss of their homes, as well as security and control of resources such as water.

Obama launched new talks between Israeli and Palestinian leaders this month, and Secretary of State Hillary Rodham Clinton will travel to the Middle East next week to foster a second round. The president acknowledged that "a major bone of contention during the course of this month is going to be the potential lapse of the settlement moratorium."

U.S. officials originally hoped that the talks would start at the onset of the moratorium, making it more difficult for Israel to allow it to lapse if the talks were making progress. But Palestinians balked at direct talks until recently, and now the administration has only a few weeks to demonstrate that the talks are a success. Palestinian Authority President Mahmoud Abbas has warned that he will terminate the discussions if settlement construction begins again.

Obama said he is making the case that the settlement freeze should continue. "What I've said to Prime Minister Netanyahu is that given, so far, the talks are moving forward in a constructive way, it makes sense to extend that moratorium so long as the talks are moving in a constructive way," Obama said.

But he noted that the prime minister faces a "very difficult" political environment in Israel, where members of his coalition have threatened to bring down the government if settlement construction does not begin anew. "One of the things that I've said to President Abbas is, you've got to show the Israeli public that you are serious and constructive in these talks so that the politics for Prime Minister Netanyahu - if he were to extend the settlements moratorium - would be a little bit easier," he said.