The US-led diplomatic process between Israel and the Palestinian Authority is going back to the drawing board, a senior US official announced Tuesday night. Following consultation with the sides, it was determined that a further settlement moratorium would not provide the basis for a framework agreement.

The official, in a telephone briefing with reporters in Jerusalem, said that “in the days and weeks ahead” the US would engage with the sides, as well as with other countries in the region, about the “core substantive issues.”

The official said that Israeli and Palestinian officials would visit Washington in the coming days for discussions. He would not say whether these would be direct talks. He was careful in not placing responsibility for the current stalemate on any one party.

Israel is expected to be represented at the talks by Prime Minister Binyamin Netanyahu’s envoy Yitzhak Molcho.

The surprise announcement came nearly a month after Netanyahu and US Secretary of State Hillary Clinton agreed in principle on a 90-day settlement moratorium extension in exchange for a package of incentives from Washington.

Since that time, the US has held intensive talks with both Israel and the PA about the precise details of the incentives and what would happen in the three months of negotiations during the freeze. What emerged, according to diplomatic officials, was a gap between what Israel thought could be achieved during this time and Palestinian expectations.

The Palestinians, according to Israeli sources, wanted the talks to focus on border issues, expecting that this issue would be solved within three months.

Israel, however, refused to commit to this timetable, arguing that it would not talk about borders without discussing security, and that it would not agree to ceding land without knowing in advance what security arrangements would be put in place when it withdrew.

Among the arrangements Israel is demanding are an Israeli presence on the eastern border of a future Palestinian state, and that the future state be demilitarized.

According to Israeli sources, the US – after hearing the positions of both sides – came to the conclusion that even if there was a moratorium for the next 90 days, it would not ensure success of the process, and that the entire process could actually explode on the 91st day if an agreement on borders was not reached.

Interested in forestalling that scenario, the US has – according to Israeli sources – decided to rethink the entire plan, look at the process with “fresh eyes” and perhaps come up with a new path forward.

One Israeli official said that construction in the settlements, restarted after the initial 10- month moratorium expired on September 26, will continue as it has since then. The official said the US position on a settlement moratorium is the same.

The US has made clear that it would have liked to see a continuation of the settlement freeze that began in November 2009.

The Israeli official said that the breakdown of the talks over the moratorium would not impact on efforts to get the US to supply Israel with a second squadron of 20 F-35 fighter jets. Under the package of incentives that were reportedly being discussed with the US, Israel was to receive the planes in exchange for an additional settlement freeze.

An Israeli official said, however, that the second squadron was requested independent of the settlement moratorium as a vehicle by which Israel could retain its “qualitative military edge” following a massive $60 billion US arms deal with Saudi Arabia.

The US official said in the phone briefing Tuesday night that it remained firmly committed to Israel’s security and to its retention of a qualitative military edge.

Defense Minister Ehud Barak said in a private meeting Tuesday that the US has a “central role in navigating the diplomatic process as a party accepted by both Israel and the Arabs.”

Barak said that in the coming days the discussion will continue between Israeli officials and Clinton, “with the aim of leading to progress in talks with the Palestinians.”