Jerusalem/Ramallah - Israeli and Palestinian officials negotiating a peace deal have not yet succeeded in bridging the gaps between them, but have made progress, US Secretary of State Condoleezza Rice said Tuesday.

"It's not surprising to anybody that there are still difficult issues to come to agreement on, that there are still gaps," she told a news conference in Jerusalem with Israeli Foreign Minister Tzipi Livni.

"And, in fact, I believe that the parties have succeeded in moving their understandings of what needs to be achieved. And, indeed, they're positioned somewhat closer together over this period of time," she said.

"We are certainly not anywhere near the point that we were a year ago," she added.

Rice later told a news conference in Ramallah with Palestinian President Mahmoud Abbas that she was "impressed with the work the negotiators have achieved so far."

She said progress had been made, but, in keeping with a decision of the negotiators, would not give any details.

Nor would she say that she thought the negotiators would not meet their goal of a peace deal by the end of 2008, saying they still had a number of months left in which to achieve their goal.

But she did concede that "it's not easy."

Abbas for his part said Palestinians would exert every effort to reach a peace deal, and wanted to reach a comprehensive one, but added that Israeli settlements in the West Bank were an obstacle to the peace process.

Rice agreed, saying that Israeli settlements were not "conducive to creating an environment for negotiations."

The secretary of state had earlier, in her news conference with Livni, also criticised Israeli settlements.

"I don't think the settlement activity is helpful to the process, that in fact, what we need now are steps that enhance confidence between the parties. And anything that undermines confidence between the parties ought to be avoided," she said.

She was commenting on a report by the Israeli Peace Now group that Israeli settlement construction has nearly doubled this year, with 2,600 housing units being built in settlements.

Some 55 per cent of the new construction is taking place east of the security barrier Israel built on the West Bank, the report said.

Peace Now also charged that there has been a 550-per-cent increase in the number of building tenders in West Bank settlements, with 417 being issued this year compared to 65 in 2007.

In addition, a total of 125 new structures have been added to unauthorized settlement outposts, 30 of which are permanent structures.

Livni however said, in response to the report, that the policy of the Israeli government was "not to expand settlements, not to build new settlements."

She said that "according to my knowledge settlement activity is reduced in the most dramatic way especially in the parts on the other side of the fence (barrier)."

"There were some small activities that are not going to influence the future borders of the Palestinian state," she maintained.

The international road map peace plan, which forms the underlying basis for the current Israeli-Palestinian talks, calls on Israel to halt all settlement activity and to remove all unauthorized settlement outposts erected since March 2001.

Rice arrived in Israel Monday afternoon, on another trip to gauge the progress of the peace talks, which resumed at the turn of the year, after a seven-year hiatus.

During her visit, she has also met with Israeli Premier Ehud Olmert.

Olmert and Abbas pledged at last year's Annapolis conference to try and reach a peace deal by the end of 2008.

The ongoing negotiations, conducted by teams headed respectively by Livni and former Palestinian premier Ahmed Qureia, have been meeting regularly.

But the talks are being held amid a virtual media blackout, leading to conflicting reports on what progress, if any, has been achieved.