Israel's continuing colonisation of the West Bank is leading to a "one-state solution", the Palestinian president, Mahmoud Abbas, has told the Guardian, while indicating that he may be poised this week to accept a US proposal for "proximity talks" with Israel through American mediators.

In an exclusive interview, the Palestinian Authority president also insisted he would not allow any return to armed resistance; offered direct negotiations with Israel in exchange for a complete three-month settlement freeze; claimed he had come close to a comprehensive agreement with former Israeli leader Ehud Olmert that went beyond anything negotiated by Yasser Arafat under President Bill Clinton; and defended Egypt's construction of an underground wall to prevent smuggling into the Hamas-controlled Gaza strip.

The Palestinian Authority president has been under intense US pressure to open peace negotiations with the Israeli government of Binyamin Netanyahu, but has so far refused to do so unless Israel freezes all settlement building in the occupied Palestinian territories, as originally demanded by the US president, Barack Obama, and required under the 2002 road map. Israel has only accepted a partial halt on settlement construction for 10 months.

Last month Obama conceded that the US had failed to achieve "the kind of breakthrough that we wanted" in the Middle East and might not have raised expectations as high if it had anticipated the political problems.

Speaking in London after meeting Gordon Brown and the foreign secretary, David Miliband, the Palestinian leader said he did not know why the Americans "backed off" their demand for a full freeze. He would consult with Arab allies before responding on Thursday to the US Middle East envoy George Mitchell's call for proximity talks.

"If there is any substance in the response from the Israeli side – for example, if they accept the framework of a two-state solution based on the 1967 borders and an end to occupation, with timelines and mechanisms – then there will be progress," Abbas said.

Israel is being pressed by the US to respond with confidence-building measures, including an end to military incursions, dismantling of checkpoints and release of prisoners, if indirect talks take place.

Abbas also said he would be prepared to resume full face-to-face peace negotiations if Israel froze all settlement construction for three months and accepted its June 1967 borders as the basis for land swaps. "These are not preconditions, they are requirements in the road map. If they are not prepared to do that, it means they don't want a political solution."

The Palestinian Authority and the PLO supported the two-state solution, Abbas said. But what Israel was doing now in the West Bank, in terms of continued occupation, settlement expansion and the confiscation of Palestinian land, was "leading to the one-state solution, which we reject".

Negotiations with Olmert in the run-up to the Gaza war, Abbas claimed, had gone further than those held in January 2001 at Taba between Arafat and Ehud Barak and included "border swaps, Jerusalem and the return of some refugees", but the Netanyahu government refused to accept what had been agreed as a basis for further negotiation.

The Palestinian leader is under pressure, both from his Islamist rival Hamas and inside his own Fatah movement, over concessions to the US and Israel and the perceived inability of his leadership to deliver tangible progress towards Palestinian national goals of an end to Israeli occupation, statehood and the return of Palestinian refugees.

"There will be no return to armed struggle," Abbas said. "It will destroy our territories and our country." Hamas itself, he argued, "is not resisting" – a reference to the organisation's effective ceasefire since January last year – "and now they are talking about peace and a truce with Israel".

But if Israel continued to resist an end to occupation, he would resign and refuse to stand in new elections: "I will have to tell our people there is no hope and no use in my staying in office." Abbas's four years as elected PA president expired a year ago, but last month the PLO extended his term until any new elections are held.

The PA leader defended his security forces' crackdown on Hamas activists in the West Bank, insisting that "we don't want to imprison any political members of Hamas, but only people who provoke the security situation, even from Fatah".

He also denied reports published in the Guardian that the CIA had been working closely with elements of the PA security apparatus involved in arresting and allegedly torturing Hamas supporters. The American role was restricted to the training and rehabilitation of the security forces as part of the wider international effort, he said.

The PA was ready to hold new elections in the Palestinian territories, last won by Hamas in 2006, if the Islamist organisation would sign the reconciliation agreement drawn up by the Egyptian government, Abbas said. He blamed "somebody outside" — code for Iran — for Hamas's refusal to do so.

The Palestinian president also defended Egypt's decision to build an underground wall on the blockaded Gaza strip's southern border to prevent smuggling through tunnels. "I support the wall," Abbas said. "It is the Egyptians' sovereign right in their own country. Legitimate supplies should be brought through the legal crossings."