JERUSALEM, Sept. 30 (JTA) – What seemed to be a breakthrough in the peace process this week has quickly soured as the controversy over Israeli settlements loomed large. Within hours after U.S. Secretary of State Madeleine Albright announced that Israeli-Palestinian negotiations would resume, Prime Minister Benjamin Netanyahu found himself caught between U.S. demands for a “timeout” on settlement construction and a threat from the National Religious Party that it would quit the government if there were a building freeze. The talks, suspended since March, are set to resume next week in the Middle East and move a week later to Washington, but there will clearly be a good deal of “talking about talking” before anyone gets down to substantive give-and-take. With discussions about the nature and extent of the timeout set to be held in Washington, Netanyahu gave an indication of his stance Monday when he said that he did not intend to change his policy of “making natural growth of the settlements possible.” Indeed, Netanyahu vowed last week to build 300 new homes in the West Bank settlement of Efrat, a pledge that was roundly criticized by Albright and Palestinian officials. The chasm between Israel and the Palestinians over the timeout issue was reflected in the absence of officials from either side when Albright announced the resumption of talks Monday in New York. This hardly spoke well of the three-way meeting Albright held prior to the announcement with Foreign Minister David Levy and the Palestinian Authority’s second-in-command, Mahmoud Abbas, who is also known as Abu Mazen. Haggling over the text of the announcement continued right up to the moment Albright approached the podium, according to informed sources. Small wonder, then, that Albright cautioned reporters that the announced resumption of talks was at best “a medium step forward.” After six months of suspended talks, during which violence and recriminations prevailed, Albright was, nonetheless, able to proclaim a cessation of the “downward spiral” in Israeli-Palestinian relations. When the talks resume next week in the Middle East, the two sides are expected to discuss outstanding issues stemming from the 1995 Interim Agreement, including the opening of a Palestinian airport in the Gaza Strip, the building of a Palestinian seaport and the creation of a safe passage route for Palestinians traveling between Gaza and the West Bank. Committees discussing those issues were set to resume in July, but those talks were postponed after suicide bombers struck Jerusalem’s Mahane Yehuda market July 30, killing 15 Israelis. Tensions escalated further after a Sept. 4 triple suicide bombing in Jerusalem left five Israelis dead. Albright found the peace process in tatters when she visited the Middle East the following week. The most she could obtain from that visit was an agreement from both sides to hold this week’s meeting in New York with Levy and Abu Mazen. Amid all the flurry of upcoming diplomatic activity, U.S. Special Middle East Coordinator Dennis Ross is expected to return to the Middle East to help launch the renewed talks, and Israeli President Ezer Weizman is slated to visit Washington next week for meetings with President Clinton, Albright and other top American officials. Along with discussions of the timeout issue, the talks between the two sides slated for Washington the week of Oct. 13 will also focus on security cooperation and on ways to resume the final-status negotiations. A largely ceremonial opening to those talks was held in May 1996, just weeks before the Israeli elections. As the agendas are worked out for the upcoming talks, much remains unclear as the two sides, egged on vigorously by Washington, return to the negotiating table. In Jerusalem, suspicions among the Israeli right were raised by reports that the Netanyahu government had agreed to discuss the timeout that Albright repeatedly called for during and after her visit to the Middle East. Levy was quoted as confirming Israel’s readiness to discuss the issue – - although he insisted there would be no “sweeping” timeout, only a “limited” one. Transportation Minister Yitzhak Levy of the NRP told a radio interviewer Tuesday that he could hardly imagine that Israel would undertake any stoppage of its building programs in eastern Jerusalem and its expansion of West Bank settlements. NRP Knesset member Hanan Porat was blunter, saying the party would not hesitate to quit the governing coalition if construction in existing settlements were suspended. The most that the NRP and other hard-line factions within the coalition are prepared to accept is a timeout on the building of new settlements. But, as all sides know, that is not much of a concession. With some 140 settlements and some 150,000 Jewish residents already in the territories, there is little pressure now to create entirely new settlements. For Netanyahu, meanwhile, the task ahead is to balance the conflicting pressures confronting him – from his coalition hawks on the one hand, and from the United States on the other. To a certain extent, the NRP’s threats may prove useful to Netanyahu, who will be able to cite them as proof during discussions with American and Palestinian officials that he cannot afford to yield on settlement building. Just the same, officials close to Netanyahu were said to be proposing a symbolic construction stoppage during the High Holidays. This proposal was said to include the controversial Har Homa project in southeastern Jerusalem. Groundbreaking for that Jewish neighborhood in mid-March led the Palestinians to suspend negotiations. Israeli officials are meanwhile stressing that everything related to the revived negotiations is predicated on the Palestinian Authority’s readiness to act firmly and consistently against terrorism. Netanyahu himself went out of his way this week to commend the self-rule government for its recent series of arrests of suspected Hamas hard-liners. During a Cabinet briefing Sunday, the head of the Shin Bet domestic security service, Ami Ayalon, said Palestinian security officials had recently arrested at least 70 suspected Islamic activists and had closed 16 Hamas operations. In apparent response to that roundup, Israel announced that it would release $17 million in tax revenues owed to the Palestinian Authority.