Nov. 4 (Bloomberg) -- Secretary of State Hillary Clinton said she assured Egyptian leaders today of the U.S. commitment to Israel-Palestinian peace talks, during a Cairo stop added in the wake of Arab anger over American policy.

Those discussions were “very productive,” Clinton told reporters after leaving the Egyptian capital. Her top aide on the region, Assistant Secretary Jeffrey Feltman, said Egyptian policy “has moved a lot closer to our position about wanting to focus on the endgame than what you might have heard from Arab leaders a week ago.”

Clinton, who came under fire after she hailed an Israeli proposal to restrict settlements in the West Bank, told Arab foreign ministers in Morocco this week that Israel has to do more. She then flew to Cairo for a meeting with Egyptian President Hosni Mubarak and his foreign minister and intelligence chief.

The dispute with Arab governments over U.S. policy overshadowed Clinton’s Middle East tour, which was intended to make progress on getting Israel and the Palestinian Authority back into broad talks on forming a Palestinian state.

“What we should focus on is the endgame, the end of the road, and not waste time in holding onto this issue or that issue as a starting point before negotiations,” Egyptian Foreign Minister Ahmed Aboul Gheit said at a joint press conference with Clinton, according to an unofficial translation.

Aboul Gheit said he and Mubarak were convinced after their talks with Clinton that the U.S. hasn’t changed its position that Israel should freeze the building of Jewish settlements. The Palestinians say the development of Israeli communities in the West Bank is an obstacle to creating a Palestinian state on the territory.

Clinton Upbeat

Clinton sounded an upbeat note as she ended her trip, which included a three-day visit in Pakistan and a stop in Israel.

“We’re not going to let anything deter us,” she said at a news conference in Cairo. “I carry with me a personal conviction that nothing can be allowed to interfere with our determination and our resolve and our conviction.”

Clinton assured Palestinians and other Arab leaders that the U.S. policy on Israeli settlements hasn’t changed.

“We do not accept the legitimacy of settlement activity,” she said. “Ending all settlement activity would be preferable.”

In the West Bank city of Ramallah, negotiator Saeb Erakat said Palestinians are facing a “moment of truth” and may give up on peace talks if Israel doesn’t stop building housing.

“Israel has a choice: settlements or peace,” Erakat said.

Gaza Dispute

Palestinians are also upset with civilian deaths during Israel’s offensive in the Gaza Strip. At the United Nations General Assembly today, the Palestinian Authority asked the body to seek the prosecution of Israel for war crimes. Israel rejects the allegations, which were made in a UN report that also accused Hamas of abuses. Hamas is a Palestinian faction that rules Gaza and is cited as a terrorist group by the U.S.

Clinton said the settlement dispute may not be resolved until talks start on the core issues of the conflict.

“What we’re looking at here is recognition that getting into final status issues will allow us to bring an end to settlement activity,” she said.

Those major issues include borders and the status of Jerusalem, where Palestinians want to put their capital.

Last May, Clinton said only a complete construction halt in the West Bank would be acceptable. In September, after meeting Abbas and Netanyahu at the United Nations, Obama referred only to a “restraint” on settlements.

Amre Moussa, secretary-general of the 22-member Arab League and a senior Egyptian diplomat, said he feared the peace process had been crippled.

‘Failure’ Atmosphere

“Failure is in the atmosphere all over,” he said yesterday. Clinton’s words left the impression that “Israel can get away with anything.”

While President Barack Obama has made achieving a two-state solution a priority, officials said the gap between the two sides is requiring tremendous energy to keep the process alive, and expectations are low for any breakthrough.

“Without this effort, it’s likely that things would go from difficult to worse,” State Department spokesman Philip J. Crowley said of Clinton’s consultations since Oct. 31 with Palestinian Authority President Mahmoud Abbas in Abu Dhabi, Israeli Prime Minister Benjamin Netanyahu in Jerusalem and Arab leaders gathered in Marrakech, Morocco.

“Sometimes the effort has an impact in and of itself,” Crowley said.

Clinton said steps to improve West Bank security by Abbas and Prime Minister Salam Fayyad were “unprecedented” and that Israel “should reciprocate.”

The decision to clarify her remarks underscores the balancing act the Obama administration faces in nudging Israelis and Palestinians back to talks.

Clinton’s revised comments satisfied Palestinian Foreign Minister Riad Malki, who told reporters in Marrakech his government was “happy that such a position was highlighted and brought back to the right line.”

To contact the reporter on this story: Indira Lakshmanan in Cairo at ilakshmanan@bloomberg.net

Last Updated: November 4, 2009 14:24 EST