The Palestinians are hoping for US recognition of an independent Palestinian state in response to Israel's refusal to freeze settlement building, chief negotiator Saeb Erakat said on Wednesday.

"We hope that the American administration would recognise the Palestinian state within the 1967 borders as a response to Israel's settlement diktats and other unilateral measures," Erakat said in Cairo.

"Decisions are needed and, if the United States wants to safeguard the two-state solution, it must recognise the Palestinian state within the 1967 borders," he told reporters.

He was referring to the Six-Day War of 1967 when Israel seized the West Bank, including east Jerusalem, and the Gaza Strip.

"Israel's defeat of US efforts places the region at a real crossroads," Erakat said.

He was speaking after talks between Palestinian president Mahmud Abbas and Arab League chief Amr Mussa, a day after Washington admitted defeat in its efforts to secure an Israeli settlement freeze.

Washington acknowledged on Tuesday that it has dropped a demand that Israel renew a freeze on Jewish settlements in the West Bank, the Palestinian condition for any resumption of direct peace talks.

Erakat said Abbas, who has reacted to the news saying the peace process was in crisis, was to hold separate talks with US Middle East envoy George Mitchell and Arab leaders.

"The president will consult with the Arab brothers before responding to the American ideas," he told a joint news conference with Mussa.

Erakat's comments came as the United States said it was still holding out hope a peace deal can be reached next year, a target set by Washington at the launch of direct Israeli-Palestinian talks.

Palestinian officials in the West Bank town of Ramallah, meanwhile, announced that Erakat himself will meet US Secretary of State Hillary Clinton in Washington in Washington within "the next 48 hours."

Amid the diplomatic flurry, Mussa said the Arab League follow-up committee on the peace process would convene next week after Abbas meets Mitchell, rather than on Saturday or Sunday as earlier proposed.

Abbas has in the past sought the committee's endorsement on the US-brokered direct peace talks that were launched in September but stalled three weeks later when Israel refused to renew a moratorium on settlement building.

On Thursday, the Palestinian leader is to hold talks in Cairo with Egyptian President Hosni Mubarak as part of his consultations with Arab leaders.

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