The 90-minute meeting was supposed to open with a ceremony celebrating the beginning of formal peace talks between Israelis and Palestinians. But the talks had to be rescheduled and moved to a secret location after it became apparent that the two sides had little to discuss.

Aryeh Mekel, the spokesman for the Israeli Foreign Ministry says both sides had grievances to air.

"The Palestinians chose to use this occasion to raise grievances. Basically our delegation led by Foreign Minister Livni expressed the need for Palestinians to take urgent action vis-à-vis the security situation and she mentioned the attacks from Gaza," said Mekel. "As you know today there were more than 20 Qassam rockets fired at Sderot and its vicinity. Also she mentioned the lack of security in the West Bank where only two weeks ago, two Palestinian policemen shot and killed an Israeli resident."

Just two weeks ago, Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas pledged to re-start peace talks aimed at reaching a comprehensive settlement by the end of next year. But since then continued Palestinian rocket attacks from Gaza, and Israel's decision to build 300 homes in an Arab East Jerusalem neighborhood known as Har Homa, have soured the atmosphere.

Palestinian negotiator Saeb Erekat says Israel has to choose between settlements and peace with the Palestinians.

Erekat says the Palestinians main point of discussion in their talks with Israel was the planned construction of 300 homes in the Har Homa, East Jerusalem neighborhood. He also says they raised the issue of Israeli military activities in the West Bank and Gaza Strip.

Tuesday, Israeli troops launched a ground incursion into Gaza - the largest such operation since June, when Hamas militants seized control of the territory from Fatah forces loyal to moderate Palestinian President Mahmoud Abbas.

The issue of Palestinian rocket fire from the Gaza Strip into southern Israel is raising concerns of a wider Israeli military offensive in Gaza. But Israel's army chief says his forces will focus on carrying out limited operations in the territory and avoid a broader invasion.

Meanwhile, the mayor of the Israeli town of Sderot, which has borne the brunt of the rocket fire, resigned saying he could not carry out his duties as long as the attacks continue.