U.S. Secretary of State Hilary Clinton has said that she believes the "time is ripe" for peace in the Middle East as Israeli and Palestinian officials began their second round of U.S.-mediated talks in Egypt on Tuesday.

Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas held two hours-worth of face to face talks at the Red Sea resort, mostly debating over the thorny issue of whether or not to extend a 10-month moratorium on Israeli settlement building that expires on Sept. 26.

Israelis want some restrictions to be lifted while Palestinians want the curb extended as is.

While some see the settlement issue as threatening to derail the nascent peace talks, which began earlier this month in Washington, Clinton says she believes an agreement can be reached that is in the "best interest of both sides."

"There are a lot of ways to get to the goal. Remember, the goal is to work toward agreement on core issues like borders and territory that would, if agreed upon, eliminate the debate about settlements," Clinton told reporters on Monday en route to Egypt.

The peace talks are the first to take place between Israeli and Palestinian authorities in nearly two years.

Negotiators have said that the talks are aimed at settling on final details for a two state solution set to be implemented within a year.

Palestinian negotiator Saeb Erekat told the Associated Press on Monday that borders should be the primary focus of the talks if they are to be successful.

"The agenda includes final status issues: Jerusalem, borders, settlements and refugees, security and prisoners. If you want to pick the right path, borders should come first," he said. "If you don't want to reach (an agreement) pick some other paths."

Talks are scheduled to continue this week on Wednesday in Jerusalem and Thursday in Ramallah on the West Bank.