Washington ( CNN ) -- After two days of meetings and talks led by President Barack Obama and Secretary of State Hillary Clinton , Israeli and Palestinian leaders leave Washington deadlocked over the contentious issue of Israeli settlements . Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas met alone behind closed doors for more than an hour and a half Thursday in a State Department room just outside Clinton 's office . The one-on-one meeting followed their on-camera pledges to move the peace process forward and their hardy handshake with Clinton in the middle . But several diplomatic sources involved in the summit said the two leaders emerged from their meeting in a stalemate over whether Israeli settlements should continue . The two leaders met with Clinton to give a readout of their meeting . According to Fadi Elsalameen , who accompanied Abbas , the two leaders were very blunt about their opposing views . Netanyahu is under pressure from the Palestinians and the Obama administration to extend a 10-month moratorium on building Israeli settlements in the disputed West Bank territory . That moratorium is set to expire September 26 . Netanyahu 's conservative coalition government wants the Israeli prime minister to end the moratorium . Elsalameen said that during the leaders ' private discussion , Abbas asked Netanyahu to extend the settlement freeze . Netanyahu reportedly said , `` I can not extend . '' Elsalameen says Abbas responded , `` Then I can not continue . '' Before the summit even began , Abbas had threatened to abandon final status talks if Netanyahu allowed Israeli settlements to go forward . The Palestinian leader is trying to show he 'll keep his word . Elsalameen said Clinton was asked about what would happen if Israel continued to expand the controversial Jewish settlements . Elsalameen said Clinton responded , as Obama had publicly stated , `` Then all bets are off . '' Despite the standoff between the Palestinian and Israeli leadership , Elsalameen said that starting Sunday , their chief negotiators will meet on a daily basis to try to entertain compromises . According to U.S. , Israeli and Palestinian officials , the hope is that during those talks , some trust and confidence will be developed , and some of the other issues will be settled , possibly making it easier to find a formula for extending the moratorium . The issue could then be discussed when Netanyahu and Abbas meet again in Egypt on September 14 and 15 . Both sides , and the Americans , fully expect some formula to be found at the last minute to extend the moratorium , the officials said . Obama told the leaders not to ruin this opportunity , according to the sources , and to make sure the 26th of September goes by quietly without incident . While nothing was agreed to , officials from both sides said the tone of this week 's talks was fairly decent , and they expressed cautious optimism . Netanyahu was apparently in a good mood after the meetings , and Abbas , who was nervous and tense the night before the talks , seemed to come away from them in a better mood . He did n't feel pressured as he has been recently and was appearing to aides to be a little more relaxed and confident , they said . Elsalameen said Abbas would be visiting Libya and Tunisia to drum up support for the Palestinian people . CNN Senior State Department Producer Elise Labott contributed to this report .
Both sides are confident an agreement on settlements can be reached . Negotiators will be meeting daily in advance of another summit next week . Netanyahu and Abbas met alone at State Department on Thursday .