JERUSALEM — Israel's prime minister on Sunday accused the Palestinians of holding up the Mideast peace process, after Washington's Mideast envoy suggested the U.S. might impose sanctions on Israel to press it to make additional concessions.

Prime Minister Benjamin Netanyahu's comments appeared to reflect concern that Israel is being perceived as the reason for the yearlong deadlock. U.S. envoy George Mitchell is expected in the region later this month in his latest attempt to bring the sides back to the negotiating table.

Mitchell alarmed Israeli officials by suggesting last week that the U.S. could use financial pressure to extract new concessions from the Israelis.

"Under American law, the United States can withhold support on loan guarantees to Israel," Mitchell told PBS interviewer Charlie Rose, noting that the previous administration of George W. Bush had done so. But he quickly added that he preferred persuasion to sanctions.

Under the Bush administration, Israel received billions of dollars in guarantees, which are U.S.-backed loans with favorable interest rates. In 2003, the U.S. whittled down the guarantees because Israel built part of its separation barrier inside the West Bank, rather than completely along it on the Israeli side.

The threat dominated Israeli newscasts and prompted Netanyahu's office to issue a statement pinning the blame for the negotiations logjam on the Palestinians.

"Everyone realizes that the Palestinian Authority refuses to renew peace talks, while Israel took significant steps to advance the process," the statement said.

The Palestinians have refused to restart negotiations with Israel until Netanyahu freezes all settlement construction in the West Bank and east Jerusalem, areas they claim for an independent state. Israel captured both areas in the 1967 Mideast war.

Netanyahu has imposed a 10-month slowdown on new construction in the West Bank in a bid to draw the Palestinians back to negotiations. But the order does not include east Jerusalem, the Palestinians' would-be capital. Israel claims all of Jerusalem as its capital, and Netanyahu has said he would not agree to divide the holy city.

In later comments, Netanyahu also accused the Palestinians of harming peace prospects by encouraging incitement. He cited a decision by municipal authorities in the West Bank city of Ramallah to name a square after the female mastermind of a 1978 bus hijacking in Israel that killed 37 people.

"This is not the way to make peace," Netanyahu told his Cabinet. "Peace is made by educating reconciliation, by encouraging good neighborly relations and by fostering respect."

Leila Ghannam, the acting governor of Ramallah, confirmed the plan to name the square after Dalal Mughrabi, but said the national Palestinian leadership had nothing to do with the decision.

"Dalal Mughrabi was a Palestinian freedom fighter who sacrificed herself for the Palestinian cause," she said. "It is our duty as Palestinians to honor our martyrs."

On Friday, the Obama administration laid out a major shift in its Mideast peace strategy, suggesting both sides move past their impasse by tackling defining borders for a Palestinian state and the status of Jerusalem.

Secretary of State Hillary Rodham Clinton said that dealing with those matters first would eliminate Palestinian concerns about continued construction in the West Bank and east Jerusalem.

The initiative appears to be getting a cool reception on both sides.

While Netanyahu has not reacted specifically to the proposal, he has said he is willing to discuss all issues in negotiations. However, officials said he indicated in recent days that it is premature to discuss borders and he has reiterated his opposition to sharing sovereignty over Jerusalem. The officials spoke on condition of anonymity because they were discussing closed discussions.

The Palestinians, meanwhile, have stuck to their demand for a complete construction freeze. If President Mahmoud Abbas retreats now from his demand, that could further hurt his standing among Palestinians who are increasingly skeptical about peace efforts. They also are disappointed with the U.S. failure to wrest a full settlement freeze out of Israel and have questioned Washington's ability to force Israel to make future concessions. (AP)