Israeli Prime Minister Benjamin Netanyahu is preparing the ground for a possible centrist coalition, if a resumption of talks with Palestinian Authority and an extension of the settlement freeze cause a major crisis within his government.

Another week has gone by without a decision by Mr Netanyahu on the future of the settlement freeze, now at the centre of Palestinian conditions for continuing direct peace talks.

Sources close to the Prime Minister maintain that his preference is to continue with the current coalition if possible, but that he will do everything he can to avoid a clash with the US administration. Mr Netanyahu is anxious that if the talks do break down, Israel will not be blamed by the White House.

Mr Netanyahu has sent indirect messages to leaders in the main opposition party, Kadima, regarding a possible coalition. He was due to meet its leader, Tzipi Livni, today.

Mr Netanyahu's attempt to chart a course between the right wing of his coalition and the demands of the US seemed increasingly difficult this week when some of his most senior ministers criticised the peace talks.

Deputy Prime Minister Moshe Yaalon further said in an interview on Tuesday that the talks were "illusions" and that he did not know "even one cabinet minister who believes that a peace treaty is possible in the foreseeable future".

In addition, Foreign Minister Avigdor Lieberman chastised two senior European foreign ministers this week, saying to Bernard Kouchner of France and Spain's Miguel Moratinos at a dinner on Sunday that "first of all solve your problems in Europe, then you can give us advice on how to solve our problems. Israel will not be the Czechoslovakia of 2010." His office leaked these remarks to the Israeli press, further embarrassing the visiting leaders.

Despite these statements, sources close to Mr Netanyahu said this week that he was trying to create the political conditions that would allow him to commit to a further extension of the settlement freeze that ended three weeks ago.

The first signal of this course came on Monday, at the opening of the Knesset's winter session, where he said that "if the Palestinian leadership will say unequivocally to its people that it recognises Israel as the nation state of the Jewish people, I will be prepared to ask for an additional moratorium on building".

Palestinian spokespeople initially rejected the proposal but the American State Department said that it "was a basic demand of the Israeli government that we support" and on Wednesday, at least one Palestinian leader seemed more amenable. Yasser Abed Rabbo, a member of the PLO executive committee, said that if Israel was to agree to a Palestinian state in the 1967 borders, the Palestinians would recognise Israel "according to the formulation of the government of the hour".

Mr Netanyahu's support of the "allegiance declaration" law proposed by Yisrael Beiteinu has also been interpreted as a move designed to overcome the party's objection to a further settlement freeze.