The Palestinian leadership insists settlement construction must stop
Israel's Prime Minister Benjamin Netanyahu says work still needs to be done to narrow differences before peace talks with Palestinians can resume.
Mr Netanyahu, speaking before heading to Egypt for talks, said he hoped to bridge the gaps as a new push on Middle East peace got under way.
US Middle East envoy George Mitchell is in Israel for talks.
A key stumbling block remains Israel's expansion of Jewish settlements in the West Bank.
But the US still hopes the Palestinians and Israelis can meet on the sidelines of the UN General Assembly later this month.
'Setting up obstacles'
Mr Netanyahu met Egyptian President Hosni Mubarak in Cairo on Sunday, and is due to meet Mr Mitchell on Monday.
During the talk, Mr Mubarak called on Israel "to stop all settlement activity, including 'natural growth' settlements," his spokesman Suleiman Awad said, according to AFP news agency.
They also discussed the issue of Jerusalem, and the borders for a Palestinian state.
Shortly after arriving in Israel, the US envoy met foreign minister Avigdor Lieberman and President Shimon Peres.
Mr Mitchell said: "While we have not yet reached agreement on many outstanding issues, we are working hard to do so."
Mr Peres said there was "an urgency to resume negotiations [with the Palestinians] before the end of this month".
Earlier, speaking after a cabinet meeting, Mr Netanyahu said of the peace push: "There is still work. There are things where there has been progress and things where there still has not been.
Mr Netanyahu is making his second trip to Egypt since May
"I hope we will be able to narrow the gaps and perhaps bridge them so we will be able to get peacemaking moving."
He said it was not Israel that was "setting up obstacles" to talks.
"From our point of view, we could do it tomorrow, or even yesterday."
Palestinian leader Mahmoud Abbas insists he will not meet his Israeli counterparts until there is a freeze on new settlements in the West Bank.
The settlement of occupied territory is illegal under international law but Israel last week said it had given permission for 455 new homes to be built.
The move prompted Mr Abbas to say that there was no point attending a summit with Mr Netanyahu.
The White House also criticised the settlement decision. President Barack Obama has previously said he wants all settlement activity to stop.
Israel has indicated that it will be willing to consider a temporary halt to granting permission for further construction.
The BBC's Tim Franks, in Jerusalem, says that Mr Mitchell will be seeking to square these competing positions ahead of the planned talks on the sidelines of the UN General Assembly meeting in New York.
President Peres met Mr Mitchell hours after being discharged from hospital a day after fainting on stage.
Mr Peres, 86, collapsed briefly while standing at a lectern answering questions in Tel Aviv.
Mr Netanyahu said of the president: "He sounds, as usual, excellent and he is, of course, unstoppable."