Israeli Prime Minister Benjamin Netanyahu welcomed Palestinian President Mahmoud Abbas to his home Wednesday as part of the latest round of peace talks between the two sides.
Asked by reporters whether the leaders were making any progress after two days of talks, Netanyahu said they were "working on it."
"It's a lot of work," he added.
U.S. Secretary of State Hillary Clinton, who is helping broker the talks, said earlier that Mideast peace talks were "getting down to business," even though the Palestinian delegation had threatened to walk out if Israel allows the clock to run out on a West Bank settlements moratorium.
The talks in Jerusalem were held a day after Netanyahu and Abbas met at a summit hosted by Egypt.
Speaking with reporters after meeting with Israeli President Shimon Peres on Wednesday, Clinton made no mention of the settlement dispute, but acknowledged that many obstacles remain.
"They have begun to grapple with the core issues that can only be resolved through face-to-face negotiations," she said. "I believe they are serious about reaching an agreement that results in two states living side by side in peace and security."
Clinton described Netanyahu and Abbas as serious and sincere, and said the United States "will stand by them when they make difficult decisions."
"We are convinced that the legitimate aspirations of these two peoples are not incompatible," she added. "We are also convinced that peace is both necessary and possible and that this is a moment of opportunity that must be seized."
Wednesday's talks in Jerusalem took place against a backdrop of violence. Israel's military said eight mortars and one rocket had hit Israel by mid-afternoon on the day of the talks -- the highest daily total since March 2009. There were no injuries.
Israeli warplanes struck back by bombing a smuggling tunnel along the Gaza-Egypt border, the military said. Hamas officials said one person was killed and four wounded.
Netanyahu and Abbas resumed direct talks in Washington on Sept. 2 -- the first direct negotiations since talks collapsed in 2008 following Israel's military offensive in the Gaza Strip. President Obama has made securing a Middle East peace accord a centerpiece of his foreign policy, and hopes to forge a deal within a year.
But the Palestinians have said that Israeli settlements, built on land seized in the 1967 war, would deny them territory they want for an independent state. Some 300,000 Israelis live scattered among the West Bank's 2.5 million Palestinians. An additional 200,000 Israelis live in east Jerusalem, the section of the holy city the Palestinians claim as their capital.
Netanyahu has said he will allow Israel's 10-month moratorium on settlement construction to expire later this month -- a potential deal-breaker for Palestinians. The prime minister is being pressed by many of his religious and nationalist allies in Israel's coalition government to resume construction. Members of his own Likud Party have taken out ads in Israeli dailies in recent days demanding an end to the slowdown.
Netanyahu appeared to be looking for a compromise, signaling earlier this week that he would restrict building activity in disputed territories even if the moratorium is lifted.
Negotiators will have to find a way past a series of thorny issues that have scuttled attempts at peace in the past. Besides the settlement issue, there are at least two other major stumbling blocks: the status of Jerusalem and the fate of Palestinian refugees who either fled or were expelled from Israel at the time of its formation in 1948.
There is little chance, however, that the delegations will ever seriously take up those points if the settlement issue isn't resolved.
Meanwhile, U.S. nuclear envoy Gary Samore reportedly warned Arab ambassadors that they could cause the Mideast talks to fail if they were to use an upcoming meeting of the International Atomic Energy Agency to pressure Israel to open its nuclear facilities to inspection.
Israel is commonly assumed to have nuclear arms but declines to discuss its status.
NPR's Michele Kelemen and Deborah Amos in Jerusalem contributed to this report, which contains material from The Associated Press.
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