Washington (CNN) -- Secretary of State Hillary Clinton urged the Israelis and Palestinians to make the tough compromises needed to reach agreement on the core issues of the Mideast conflict, including borders, refugees, settlements and Jerusalem.
"It is no secret that the parties have a long way to go and that they have not yet made the difficult decisions that peace requires," Clinton told a Washington think tank.
Her remarks to the Brookings Institution's Saban Forum come on the heels of the Obama administration's announcement that it was abandoning efforts to persuade Israel to renew a settlement freeze as a precondition for jump-starting Israeli-Palestinian peace talks.
The decision put an end to months of grueling diplomacy which led the administration to conclude a focus on the settlements was distracting the parties from dealing with the core issues of the conflict.
As the administration sought a new strategy to save the peace talks, Clinton delivered a tough message that reflected the administration's impatience with both sides.
"You don't have to read secret diplomatic cables to know that we are meeting during a difficult period in the pursuit of peace in the Middle East," Clinton said, referring to the leaked cables on WikiLeaks.
Clinton warned that the demographic trends resulting from continued Israeli occupation of the Palestinian territories are risking Israel's future as a Jewish state, while extremism in the absence of peace is further jeopardizing its security.
"We conclude without a shadow of a doubt that ending this conflict once and for all and achieving a comprehensive regional peace is imperative for safeguarding Israel's future," she said.
Similarly, she added that the conditions Palestinians suffer due to the occupation are "unacceptable" and "unsustainable."
Clinton said the Obama administration would work with the parties to pursue a framework agreement on the core issues of the conflict: borders and security, settlements, water and refugees, and on Jerusalem, which would pave the way for the resumption of direct talks and a final peace deal.
Starting with borders, Clinton said the parties must "agree to a single line drawn on a map which divides Israel from Palestine" in a way that offers Palestinians an end to the occupation but protects Israel's security.
While acknowledging the fate of Palestinian refugees was a "difficult and emotional issue," Clinton said, "there must be a just and permanent solution that meets the needs of both sides."
Although the United States abandoned efforts to secure a settlement freeze during the negotiation, Clinton said the issue of settlements must be dealt with in a final peace deal.
"We do not accept the legitimacy of continued settlement activity. We believe their continued expansion is corrosive not only to peace efforts and the two-state solution, but to Israel's future itself," she said.
"There surely will be no peace" without agreement on Jerusalem, the thorniest of all the final status issues because of its religious significance to Muslims, Christians and Jews, she said.
"The parties should mutually agree on an outcome that realizes the aspirations of both parties for Jerusalem and safeguards its status for people around the world," Clinton said.
She praised state-building efforts by the Palestinians and improvements in security, but acknowledged, "for all the progress on the ground and all that the Palestinian Authority has accomplished, a stubborn truth remains: While economic and institutional progress is important, indeed necessary, it is not a substitute for a political resolution."
Clinton said the Obama administration would push the parties in separate in-depth talks with both sides to lay out their positions "without delay, in good faith, and with real specificity."
"We will work to narrow the gaps, asking tough questions and expecting substantive answers. And, in the context of our private conversations with the parties, we will offer our own ideas and bridging proposals when appropriate."
Before her remarks, Clinton held talks with senior officials from both sides, including Palestinian Prime Minister Salam Fayyad and Israeli Defense Minister Ehud Barak. She also met with lead Israeli and Palestinian negotiators and the U.N. special envoy for the region. The Obama administration's special Mideast peace envoy will travel to the region next week.
But Clinton put the onus squarely on the leaders themselves to understand each other's perspective, prepare their own publics for the difficult compromises that will need to be made and stop demonizing the other side.
"To demonstrate their commitment to peace, Israeli and Palestinian leaders should stop trying to assign blame for the next failure and focus instead on what they need to do to make these efforts succeed," she said.
Similarly, she warned against "unilateral actions" to prejudge the outcome, such as Israeli announcements about building in East Jerusalem and Palestinian threats to seek independence at the United Nations.
Clinton urged Arab states to take steps to promote peace and reaffirmed U.S. support for the Arab Peace Initiative, a proposal which guarantees Israel peace and recognition by all Arab states in exchange for the return of all Arab land and the creation of a Palestinian state.
"It is time to advance this vision with actions as well as words. And Israel should seize the opportunity presented by this initiative, while it is still available," she said.
Saab Erekat, the chief Palestinian negotiator, blamed the Israelis for the problems with the peace talks.
"We are consulting in the aftermath of the Israeli government foiling the American efforts to continue with direct negotiations," he said. "The Israeli government had the choice between settlements and peace and they chose settlements. And they alone are responsible for the derailment of the peace process."
Barak, who spoke to the think tank after Clinton, said that although they not able to launch a second moratorium on settlements, "we must find a way to renew negotiations ... we must overcome suspicion." He said there "is no contradiction between a two-state solution and the security of Israel."
"I am optimistic," the defense minister said. "I believe it can be done."