Mr Netanyahu and Mr Mitchell make statements after their London meeting
Israel says it is nearing agreement with the US on settlement building in the occupied West Bank, after its PM held talks with a US envoy in London.
The US wants Israel to comply with Palestinian demands that it stop all building before peace talks can start.
The US and Israel were "getting closer" to a "bridging formula", a spokesman for Israeli PM Benjamin Netanyahu said.
Mr Netanyahu said earlier that he hoped talks with the Palestinians would restart "shortly".
BBC Middle East editor Jeremy Bowen says US President Barack Obama is hoping to unveil a Middle East peace plan at the United Nations in September.
Jeremy Bowen, BBC Middle East Editor
According to Mr Netanyahu's spokesman, Israel is ready to restrict construction for Jews in the occupied Palestinian territories. But it looks as if it won't be the comprehensive freeze that the Americans - and Palestinians - wanted.
Israel says it won't accept any restrictions on what it does in Jerusalem, part of which is occupied territory. A senior Israeli official said they were confident that the Americans would persuade the Palestinians to go along with the deal they're poised to make.
It's all aimed at paving the way for a resumption of US sponsored peace talks in the next few weeks. After that President Obama is hoping to unveil a Middle East peace plan at the UN in New York next month.
During this visit to London Mr Netanyahu has also quoted approvingly a call by the US Secretary of State Hillary Clinton for crippling sanctions against Iran. She said they'd be necessary if diplomacy failed to stop Iran's programme of nuclear enrichment.
Mr Netanyahu and US envoy George Mitchell released a joint statement after their four-hour meeting at the Park Lane Hotel, saying Israeli officials would meet Mr Mitchell again next week, AFP news agency reported.
Before the two met, Mr Netanyahu said the US and Israel were "making headway" and said he hoped the two sides would "shortly be able to resume normal talks".
There has been speculation that Mr Netanyahu and Palestinian Authority President Mahmoud Abbas could meet on the sidelines of the UN General Assembly in September.
Speaking anonymously, Palestinian officials said this was a possibility, although the two could only meet for talks, not formal negotiations.
The Palestinians have refused to resume peace negotiations unless Israel stops all settlement building.
Wednesday's meeting in London followed talks with UK Prime Minister Gordon Brown, when Mr Netanyahu rejected any construction freeze in occupied East Jerusalem.
He reiterated his demand that the Palestinians recognise Israel as a Jewish state.
Mr Netanyahu has said Israel will not build new settlements, but wants to continue building within existing ones to allow for the "natural growth" of the communities living there.
The American pressure on Mr Netanyahu has strained normally close Israel-US ties.
After meeting Mr Mitchell in London, Mr Netanyahu is travelling to Berlin, the next stop on his four-day European tour.
Some 450,000 Israeli settlers live in the West Bank, including East Jerusalem. The settlements are illegal under international law, although Israel disputes this.
Israel agreed to freeze settlement activity as part of the 2003 staged international peace plan known as the roadmap.
But Israeli officials say there was an unwritten understanding with the administration of former US President George W Bush that allowed limited growth within existing settlements to continue.
Mr Netanyahu's right-leaning government has not published tenders for new housing units in settlements since it came to power in April.
But the left-wing Israeli group Peace Now, which monitors building in settlements, says government-backed projects make up only 40% of construction and that building has been continuing on the ground in many places.
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