After months of trying to broker a formula under which Israel would impose a new freeze in return for U.S. incentives, two American officials said the administration had concluded their efforts were not the best way to relaunch negotiations. Talks stalled in September, barely a month after they started.
An announcement of the decision will likely come later Tuesday, one of the officials said.
Both officials spoke on condition of anonymity because they were not authorized to speak publicly on the matter.
The officials said the administration was not abandoning efforts to broker a peace deal and noted that Israeli and Palestinian negotiators will visit Washington next week for consultations.
The U.S. will engage both sides on key issues in the coming days, one of the officials said. Arab states and other interested countries also will be consulted, the official said.
Israeli and Palestinian officials refused to comment.
Earlier Tuesday, Israel's defense minister said the U.S. has halted talks with Israel on settlement activity because Washington is distracted by the.
State Department spokesman P.J. Crowley denied that the U.S. was holding up the talks. "The process has not stopped," he told reporters. "Our efforts are not suspended." He said that perhaps Israel was preoccupied with putting out a huge forest fire that burned until Sunday.
The U.S. has pressed Israel to renew a moratorium on new settlement construction in exchange for security and diplomatic assurances. Israel wants those in writing, as well as a pledge that east Jerusalem will be exempted from the moratorium.
Palestinians say they won't return to stalled peace talks unless Israel halts all building in the West Bank and east Jerusalem - lands they want for part of their future state.
Peace talks began in September but ground to a halt three weeks later after Israel's original moratorium on new West Bank construction expired.
Prime Minister Benjamin Netanyahu returned from a November trip to the U.S. with a list of security and diplomatic guarantees, including 20 next-generation stealth fighter planes and U.S. pledges to veto anti-Israel resolutions at the United Nations, according to Israeli officials. In exchange, Israel was to renew limits on settlement construction that expired in late September.
Days later the deal snagged after members of Netanyahu's Cabinet demanded a written pledge from the U.S. that the moratorium would exclude east Jerusalem. Such a pledge has not materialized.
The U.S. hopes a renewed moratorium would allow Israel and the Palestinians to work toward a deal on their future borders.
With borders determined, Israel could resume building on any territories it would expect to keep under a final peace deal.