VIDEO | Netanyahu seeks 'new solutions' to Palestinian conflict

Washington meanwhile announced that US Secretary of State Hillary Clinton would travel to the region later this month for the first of twice-monthly meetings between Netanyahu and Palestinian president Mahmud Abbas.

And the Palestinians warned that failure to clinch an agreement would spell the end of Abbas's moderate, Western-backed Palestinian Authority and strengthen Islamists and other factions opposed to talks with Israel.

"We will need to think creatively, and in new ways, about how to resolve complex problems," Netanyahu told reporters at the start of Israel's weekly cabinet meeting.

"In order to reach practical solutions, we will need to think about new solutions to old problems," the right-winger said.

"To succeed, we will need to study the lessons of the 17-year effort at negotiations and to embrace original thinking, to think outside the box," he said, referring to the 1993 Palestinian autonomy accords.

Netanyahu insisted, however, that he was "willing to achieve an historic compromise with our Palestinian neighbours so long as it maintains the national interests of the state of Israel with security first and foremost."

The two sides relaunched direct peace talks at a Washington summit on Thursday after a 20-month hiatus, but the negotiations will face a major test later this month when an Israeli settlement moratorium expires.

The Palestinians have warned that if Israel does not renew the partial freeze on settlement construction in the occupied West Bank when it expires on September 26 the peace process will end.

Netanyahu, under pressure from right-wingers who dominate his ruling coalition to resume construction, has said settlements should be discussed alongside other core disputes that have bedeviled past attempts at peace, including the final status of Jerusalem and the fate of Palestinian refugees.

"It is almost impossible to do it" as it would cause a government crisis, Deputy Prime Minister Sylvan Shalom said of extending the construction freeze.

Asked about the risks to the peace talks of resuming construction in the occupied West Bank, Shalom told foreign journalists "the Palestinians would make a big mistake" of they quit the talks.

Netanyahu plans to hold twice-monthly talks with Abbas starting with a September 14-15 meeting in Egypt's Red Sea resort of Sharm el-Sheikh, which will be attended by Clinton.

After attending the talks in Sharm el-Sheikh she will head to Jerusalem for further discussions, a State Department official said in Washington.