* Palestinians say stalled talks undermine moderates
* Growing dismay at U.S. failure to pressure Israel
By Crispian Balmer
RAMALLAH, West Bank, Oct 15 (Reuters) - The stalemate in direct peace talks with Israel risks undermining the moderate Palestinian leadership and should force world powers to reassess their Middle East strategy, senior Palestinian officials say.
The U.S.-brokered negotiations kicked off in Washington last month, but stalled less than 4 weeks later after Israel refused to extend a freeze on settlement building in the occupied West Bank, prompting the Palestinians to refuse to carry on talking.
In a series of interviews this week with leading Palestinian officials, a sense of pessimism prevailed, coupled with deep disappointment at the United States' handling of the situation.
"If the United States cannot bring about another small freeze in the settlements, how can we guarantee they will help us solve the big problems?" said Yasser Abed Rabbo, a member of President Mahmoud Abbas's core negotiating team.
"We are the most moderate leadership in our history ... but we will fall with failure, because frankly the peace process is our strategy. Hamas is waiting for our failure," he added, referring to the militant Islamist group that controls Gaza.
The Palestinians said they made clear from the start that they would quit the talks unless Israel's 10-month settlement moratorium was extended beyond a Sept. 26 expiry date.
One official, who declined to be named, said the Americans had reassured them in private there would be no Israeli building during this latest attempt to end the decades-old conflict.
U.S. officials have not revealed details of the short-lived negotiations, but diplomats have confirmed that Washington has offered a package of incentives, including ideas on security, to persuade the Israelis to resume the freeze for just 2 months.
Israeli Prime Minister Benjamin Netanyahu says he is considering the offer, but reportedly wants more concessions.
MORE STICK, LESS CARROT
Rather than reward Israel, President Barack Obama should apply heavy pressure to end settlement work on land seized in a 1967 war, Palestinians say, warning that extensive Jewish building was wrecking their chances of creating a viable state.
"Once again they are promising Israel everything in return for tiny, miniscule steps to reduce some of its violations," said Hanan Ashrawi, a veteran politician and member of the Palestine Liberation Organisation executive committee.
"They are destroying the most moderate Palestinian leadership for the sake of rescuing the most extremist, hardline, rightwing (Israeli) government," she said.
Netanyahu says there should be no preconditions for the talks to carry on and notes that no other Israeli government has been forced to accept such a demand in any previous round of Middle East negotiations.
But Palestinians believe most countries now support their position and many argue that if these talks do indeed collapse, the time will have come to push the United Nations to recognise an independent Palestinian state, with or without Israeli consent.
"Almost everyone agrees that a two state solution is the way forward. But if the reality in Israel makes that impossible, why should we be held hostage to Israeli consent?" said Palestinian Authority spokesman Ghassan Khatib.
Israel has warned Palestinians not to go down that path and such a move would require U.S. backing -- something that appears highly unlikely for now.
But senior Palestinian officials say there is a growing feeling the old model of U.S.-brokered talks might have outlived its sell-by date following countless reverses, arguing that negotiations between unequal partners cannot reach a fair conclusion.
"It is time for someone to impose a solution and tell Israel to end the occupation," said Mohammad Shtayyeh, a top official with Abbas's Fatah movement and a member of his negotiating team.
"If Washington is not in a position to put pressure on Israel, then the dynamics should change," he said, cautioning that ordinary Palestinians were fed up with years of failure.
"The mood of the average Palestinian is one of disgust. People want to see the light at the end of the tunnel, but the tunnel has been so long." (Additional reporting by Tom Perry, Mohammed Assadi and Ali Sawafta; Editing by Samia Nakhoul)
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