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US admits defeat on Israeli settlement freeze. Can it still broker peace?

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"We will assess if the US would be able ... to achieve success in its upcoming efforts," Yasser Abed Rabbo was quoted as saying on the Voice of Palestine radio station.

"The one who couldn't make Israel limit its settlement activities in order to conduct serious negotiations, how can he be able to make Israel accept a fair solution," he added. "This is the big question now."

Unilateral declaration of statehood?

The Palestinians, meanwhile, are considering a unilateral declaration of statehood, perhaps by requesting resolutions from the United Nations General Assembly or Security Council.

Resolutions from individual countries, though symbolic, are seen as a step in that direction. In addition to a letter of recognition from Uruguay early next year, Palestinians are hoping to win recognition from additional South American countries including Chile, Paraguay, and Peru, said a Palestinian official involved in the effort.

"The recognition for the Palestinian state on the 1967 borders is essentially an insurance policy,'' says the official, who requested anonymity because of the sensitive negotiations. "We Palestinians have to protect the borders of the Palestinian state.''

State Department spokesman P.J. Crowley said that Argentina's statehood recognition was "counterproductive," and that only through negotiations can the sides resolve problems. Israel criticized the move as well.

US peace plan could discourage unilateral action

A US peace plan, proponents argue, could pull both sides away from any unilateral moves that could undermine the Obama administration's push for an Israeli-Palestinian peace deal.

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