The announcement came as Mitchell and US Vice-President Joe Biden were in the region.

"I think we are at a moment of real opportunity," said Biden.

A delighted Mitchell will shuttle between Israel and the Palestinian territories over the next few weeks, edging the sides towards a deal.

"We've begun to discuss the structure and scope of these talks and I will return to the region next week to continue our discussions," he said. "As we've said many times, we hope that these will lead to direct negotiations as soon as possible."

But the Palestinians had only agreed to the indirect talks reluctantly.

President Mahmoud Abbas has said he won't resume direct negotiations without a settlement freeze, leaving the US no choice but to arrange the indirect "proximity talks" in a bid to restart the peace process, which has been stalled for 17 months.

Mitchell appealed to the two sides not to do anything that could jeopardise the talks.

"We want the parties to refrain from any statements or actions which may inflame tensions," he said. But Israel appeared to do exactly that with a controversial announcement of 1,600 new homes to be built in disputed east Jerusalem - the area the Palestinians want as the capital of a future Palestinian state.

Prime Minister Benjamin Netanyahu told Biden that he had no prior knowledge of the decision to authorise the new housing units in the ultra-Orthodox settlement of Ramat Shlomo.

He said the plans had been submitted three years ago and had only received initial approval that day.