JERUSALEM – Palestinian militants and Israeli forces attacked each other Wednesday, forming a grim backdrop for the latest round of U.S.-driven peace negotiations. The talks ended with no agreement on the most pressing issue: Jewish settlements.

Former Sen. George Mitchell, the U.S. envoy for Mideast peace efforts, emerged from an evening session between Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas to say the talks had been encouraging but fell short of a breakthrough.

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

The leaders met with U.S. Secretary of State Hillary Rodham Clinton for about two hours and agreed to continue the search for a peace deal, he said. But 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.

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."