Nov. 2 (Bloomberg) -- Secretary of State Hillary Clinton has scheduled a meeting with Egyptian President Hosni Mubarak in Cairo in two days as she tries to temper Arab criticism of her praise for Israel’s offer to restrict West Bank settlements.

The planned visit was announced as Clinton was in Marrakech, Morocco, today to attend a forum with Arab ministers, where she said the Israeli offer “falls far short” of U.S. calls for a total settlement freeze.

Still, the offer and Palestinian efforts to improve West Bank security are both important steps to resuming peace talks, she said. Clinton assured Arab leaders that praise of Israel doesn’t mean acceptance of West Bank settlements.

The tension illustrated the difficulties faced by the Obama administration as it attempts to bring the Israelis and Palestinians back to the bargaining table.

Clinton two days ago hailed Israeli Prime Minister Benjamin Netanyahu’s proposal to limit settlement expansion as an “unprecedented” move to renew peace talks. Today, she said steps taken by Palestinian Authority President Mahmoud Abbas and Prime Minister Salam Fayyad “are also unprecedented,” and Israel “should reciprocate.”

Earlier today, Arab League Secretary-General Amre Moussa, who is also in Morocco for the Forum for the Future conference, told reporters that he feared the peace process had been crippled by her comments in Jerusalem.

‘Deeply Disappointed’

“I still wait until we have our meetings and decide what we are going to do,” Moussa said. “But failure is in the atmosphere all over.”

“All of us, including Saudi Arabia, including Egypt, are deeply disappointed” by Clinton’s words in Jerusalem, he said. She “left the impression that “Israel can get away with anything.”

Clinton, seated alongside Moroccan Foreign Minister Taieb Fassi-Fihri an hour later, referred to a prepared statement when asked by a reporter if her comments had undermined trust in the peace effort.

“I think it’s important to put this into context,” she said. “The Obama administration’s position on settlements is clear, unequivocal, it has not changed,” and the U.S. “does not accept the legitimacy of continued Israeli settlements.”

Clinton said her intent was to “offer positive reinforcement to the parties when I believe they are taking steps that support the objective of reaching a two-state solution. I will also push them, as I have in public and private, to do even more.”

Palestinian Response

Her clarification satisfied Palestinian Foreign Minister Riad Malki.

“We are happy that such a position was highlighted and brought back to the right line,” Malki told reporters in Marrakech. “We completely appreciate the sincere efforts made by President Obama and his team” to make a settlement freeze “a top priority.”

Haim Malka, deputy director of the Middle East program at the Center for Strategic and International Studies in Washington, said Clinton “is trying to put a positive spin on the positions of both sides with the hope that direct negotiations can still be cobbled together.”

“That’s a tough sell,” Malka said.

“The gaps between both sides are so far apart right now that those negotiations are not going to get very far” even if they were to start, he said in a telephone interview today.

‘Restraint’

Israel is obliged to freeze all Jewish settlements in occupied territories under a framework for peace brokered by the Bush administration. Last May, Clinton said only a complete construction halt would be acceptable to President Barack Obama. Last month, Obama referred only to “restraint” in settlement activity, not a “freeze.”

Netanyahu said Sept. 17 that about 2,400 new homes are already under construction in the West Bank and plans for another 500 or so have been approved.

The U.S. understanding of Netanyahu’s proposal to restrain further settlements is that the homes already under construction could be completed, while others that are approved or in the planning stages would not be started, a senior State Department official told Bloomberg today. The prime minister has also promised not to take over any more Palestinian land in the West Bank to expand settlements.

Clinton today said Netanyahu’s plan “falls far short of what we would characterize as our position or what our preference would be, but if it is acted upon, it will be an unprecedented restriction on settlements and would have a significant and meaningful effect on restraining their growth.”

Israeli-Palestinian negotiations broke down in December when Israel launched a military operation in the Gaza Strip. The Obama administration’s high-profile efforts thus far have failed to bring the two sides together again.

To contact the reporters on this story: Indira Lakshmanan in Marrakech, Morocco at ilakshmanan@bloomberg.net

Last Updated: November 2, 2009 15:59 EST