(CNN) -- U.S. Secretary of State Hillary Clinton has proposed a three-month extension of Israel's construction moratorium on the West Bank, a diplomatic source told CNN Thursday.
The proposal, which was made this week during Middle East peace talks being held in the region, was accepted by Palestinian Authority President Mahmoud Abbas, but essentially rejected by Israeli Prime Minister Benjamin Netanyahu.
The two sides appear to be at a stalemate, the source said.
Netanyahu's official position remains that he will not support any extension of the moratorium, which has been in place for 10 months and is set to expire September 26.
The U.S. special envoy to the region, former Sen. George Mitchell, is attempting to negotiate a "quid pro quo" from the Palestinians in exchange for an extension, the source added.
"There are all kinds of ideas in the air" over different ways to break the logjam, the source noted.
"Nobody is going to let the talks break down over this issue," the source said. "Nobody is walking out of these talks."
Among the ideas being discussed is a recognition on the part of the Palestinians of Israel as a fundamentally Jewish state. A partial continuation of the moratorium is also under discussion, though Abbas has so far resisted anything less than a full extension, the source said.
Israeli and Palestinian negotiating teams are expected to continue discussing the issue at a meeting scheduled for Sunday, the source added.
The expectation is that some sort of solution will ultimately be found, the source said.