O'Neill added: "Things are very much up in the air and the main aim for the chairman and myself is to try to keep him here.
"You can make people see out their contracts but in essence we would want a pretty amicable solution to all of this and we're still hopeful that things can be resolved in favour of Aston Villa."
The England midfielder, who has spent most of his career at Villa, has two years left on his current contract and the prospective lure of Champions League football may be too hard to resist.
But O'Neill said: "Gareth has played for England because he plays regularly for Aston Villa and his place is not in jeopardy. Frankly, England coach Fabio Capello does not need to see him playing in a Champions League game to be convinced."
O'Neill had criticised Benitez's approach for Barry but the Liverpool manager insisted he had done nothing wrong in making known his interest in the midfielder.
"I think the right approach when you want to sign a player is to talk to the manager," Benitez told BBC Radio Merseyside.
"I was talking to Martin O'Neill. I said we would like to sign Gareth Barry and asked what the situation was.
"He just said he needed to talk to the owner and I said OK. He will not have any problems with his supporters because he never said to me he wanted to sell Barry."
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