JERUSALEM – A mortar attack by Palestinian militants and airstrikes by Israel formed the grim backdrop as Mideast leaders ended their latest round of peace talks Wednesday, still divided on major issues. There was no word on when they would meet again.

The inconclusive U.S.-brokered talks between Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas left in doubt the prospects for their new effort to end generations of hostilities in the region and create a sovereign Palestine alongside a secure Israel.

George Mitchell, the U.S. envoy for Mideast peace efforts, emerged from an evening session to say the talks had been encouraging but had fallen short of agreement.

"A serious and substantive discussion is well under way," Mitchell told a news conference.

Abbas and Netanyahu met with U.S. Secretary of State Hillary Rodham Clinton for about two hours at the Israeli leader's official residence here and agreed to continue the search for a peace deal, he said.

But the leaders face a looming crisis with the expiration this month of Israel's partial moratorium on West Bank settlement construction, and it was not clear when they would reconvene. Lower-level officials will meet next week to work out a plan for the next meeting between Netanyahu and Abbas, Mitchell said.

Clinton planned to meet with Abbas on Thursday at his West Bank offices in Ramallah, and then travel to Amman for a working lunch with Jordan's King Abdullah II, who has been a forceful supporter of the peace talks.

Militants opposed to any deal with Israel have threatened to derail the negotiations, and the Israeli military said eight mortars and one rocket hit Israel Wednesday — the highest daily total since March 2009. There were no injuries.

Israeli warplanes responded by bombing a smuggling tunnel along the Gaza-Egypt border, the military said. Hamas officials said one person was killed and four wounded.

Mitchell said no one should expect an easy road ahead, but he contended important progress was being made.

"The two leaders are not leaving the tough issues to the end of their discussions; they are tackling upfront — and did so this evening — the issues that are at the center of the Israeli-Palestinian conflict," he said. "We take this as a strong indicator of their belief that peace is possible and of their desire to conclude an agreement."

The aim is to reach a final peace deal within one year, with the first step being what Mitchell calls a "framework" agreement that would lay out the main compromises each side would need to make in order to complete a full peace treaty.

But the most immediate obstacle is the approaching expiration of a 10-month Israeli government curb on construction of housing in areas that the Palestinians expect will form the bulk of their sovereign state.

Abbas has threatened to walk out of the talks if Israel resumes construction when the slowdown expires at the end of this month. Clinton and President Barack Obama have called on Netanyahu to extend it.

Netanyahu has signaled he is looking for a compromise. Earlier this week, he said the current curbs won't remain in place after the end of this month, though he will continue to restrict building activity to some extent. It's not clear if that would be enough to satisfy Abbas.

Achieving at least a tacit understanding on West Bank settlements that allows the peace talks to continue is crucial for the Obama administration, which has made an agreement between Israel and the Palestinians a foreign policy priority.

But it would be only a first step toward what Obama hopes will eventually be a comprehensive peace for the region — an Israeli accommodation with Syria and Lebanon as well as the Palestinians.

Jordan and Egypt, which already have peace treaties with Israel, are co-sponsors of this week's talks.Egyptian President Hosni Mubarak hosted Tuesday's negotiations in Sharm el-Sheikh, and Clinton is going to Amman on Thursday to consult with Jordan's King Abdullah.

Mitchell said he will visit Syria on Thursday and Lebanon on Friday in search of a broader Mideast peace, although there is no apparent movement toward direct negotiations between Israel and either country.

The U.S. view is that even tentative steps toward such talks would bolster the Israeli-Palestinian negotiations by raising hopes for success.

Mitchell made no mention of the mortar shells fired into Israel by Palestinian militants in Gaza or of Israel's retaliatory air strike on Gaza — violence that erupted just as the leaders were sitting down for a second day of talks. Clinton and the two leaders had met on Tuesday in Egypt to begin their first substantive negotiations in nearly two years.

Abbas did not comment publicly and Netanyahu's only remark was that the peace negotiations were difficult but necessary work.

At his news conference, Mitchell refused to say what sort of compromises were under discussion on the divisive issue of Jewish settlements. He said it was necessary to keep the details confidential to keep the talks on track.

Private U.S. analysts are split on the prospects.

Martin Indyk, a former U.S. ambassador to Israel and now director of the foreign policy program at the Brookings Institution, told The Associated Press that he was cautiously optimistic. The test, he said, will come in two weeks when Netanyahu is due to decide whether to extend the partial moratorium on settlement construction.

"I have reason to be hopeful," Indyk said, pointing out that Netanyahu has called Abbas his partner and has said that the Palestinians need sovereignty — "which is very new and critical to a deal."

Jim Phillips, Middle East specialist at the Heritage Foundation, took a pessimistic stance. He focused his concern on Iran and Hamas, the militant Palestinian group that controls Gaza.

"It is politically incorrect to say so, but I believe there can be no genuine peace so long as Hamas remains a spoiler backed by Iran," Phillips said.