Israel said on Thursday it had put the ball in the Palestinian court with temporary controls on settlement building aimed at reviving US-backed talks, as the two sides traded charges of gamesmanship.

"The ball is now in the Palestinian court and we will see what happens," Foreign Minister Avigdor Lieberman told public radio, a day after Prime Minister Benjamin Netanyahu announced 10-month restrictions on construction in the occupied West Bank.

Move praised by the US

The move was praised by the United States as a step towards relaunching the peace process, but the Palestinians said it fell far short of their demand for a complete settlement freeze ahead of any new negotiations.

"We have done everything possible for Abu Mazen," Lieberman said, referring to Western-backed Palestinian President Mahmud Abbas.

"The government has made unprecedented gestures and all we have received in return is blows and anti-Israeli manoeuvres on the international front by the Palestinian Authority."

Britain and France also welcomed the Israeli announcement, saying it would help revive the stalled peace talks.

But Russia said the decision did not go far enough and called for a complete halt to settlement construction in the whole West Bank, including annexed Arab east Jerusalem.

The Israeli decision excludes east Jerusalem, which the Palestinians want to make the capital of their promised state but which Israel insists is an integral part of their "eternal, indivisible capital".

It 'brings nothing new'

It also does not affect the construction of public buildings or the completion of hundreds of housing units already under way.

"This is a not a freeze in settlements in the West Bank or in Jerusalem, but a manoeuvre to conceal the continuation of settlement construction," senior Palestinian official Yasser Abed Rabbo told reporters in the West Bank town of Ramallah.

"The announcement yesterday does not indicate Israel's intention to seriously take part in the peace process."

In Chile, his latest stop on a Latin American tour, Abbas said the Netanyahu offer "brings nothing new. Settlement activity will continue in the West Bank and Jerusalem."

Netanyahu "had a choice between peace and settlements and, unfortunately, he chose the settlements," Abbas said in Santiago.

In a joint declaration with Chilean President Michelle Bachelet, Abbas reaffirmed "the pressing need for Israel to cease illegal settlements in the Palestinian territories."

Mixed reaction in Israel

In Israel, the Netanyahu move was seen as a gesture to Washington following months of US pressure on the Jewish state to freeze settlements.

"It is unlikely that Netanyahu really believed Abbas would thank Israel's government for deciding to temporarily freeze the settlements in the West Bank," Israel's left-leaning Haaretz newspaper said in an editorial.

"The really important question, which interests Netanyahu more than anything, is how US President Barack Obama will view his proposal," it added.

The United States has been struggling for months to get Israel and the Palestinians to relaunch direct negotiations suspended during last winter's devastating Gaza war.

The Maariv daily said the settlement decision was likely to relieve pressure on Israel but only in the short term.

"From now, this hot potato is no longer on (Netanyahu's) desk, at least not for the coming 10 months," the paper said.

"That's how it is with us. We play from one Saturday to the next, from one month to the next at most."

But for Jewish settlers, the concession, albeit limited, from a premier and a foreign minister they once regarded as their champions was viewed as a betrayal.

Settlers in the West Bank pounced on a stabbing attack by a Palestinian on an Israeli man and a woman outside the settlement of Kiryat Arba near the flashpoint city of Hebron as indication of where any show of Israeli weakness would lead.

"The attack is a direct result of the construction freeze and the cowardice the government is showing in the face of the enemy," a spokesperson for Hebron settlers said in a statement.

The two Israelis escaped with minor injuries. Their assailant was in critical condition in hospital after being shot by an Israeli soldier.