Mr Mitchell is due to meet Mr Lieberman and Israeli Defence Minister Ehud Barak on Thursday, and Israeli Prime Minister Benjamin Netanyahu and Palestinian leader Mahmoud Abbas on Friday.

Reports quote US officials saying the visit was unlikely to conclude with a resumption of talks.

But the envoy said before a meeting with Israel's president: "We're going to continue with our efforts to achieve an early relaunch of negotiations... because we believe that's an essential step toward achieving the comprehensive peace."

In a radio interview, Mr Lieberman said people who think Israel and the Palestinians can reach a deal "do not understand reality and are sowing illusions".

"We have to be realistic - we will not be able to reach agreement on core and emotional subjects like Jerusalem and the right of return (of Palestinian refugees," he said.

"I am going to say very clearly - there are conflicts that have not been completely solved and people have learned to live with it, like Cyprus."

His suggestion was a long-term interim deal to ensure prosperity, security and stability and leave tough questions until later."

Policy proposal

Mr Lieberman's comments are broadly in line with a policy proposal from within the Israeli foreign ministry leaked to the Israeli press on Thursday.

The document, which the BBC has seen, says: "Creating expectations that a comprehensive solution to the conflict can be reached might lead again to disappointment and frustration that will sour our relations with the US and Europe, and cause a violent reaction among the Palestinians.

"We can reach an interim agreements between the sides without solving the core issues such as Jerusalem, right of return and borders - that is the maximum which realistically could be attainted and its very important to convince the US and Europe of this."

The Foreign Ministry said the reports about the policy proposal were "partial leaks from internal documents" and the leaks were regrettable.

It said Mr Lieberman had "requested a survey of existing policy and possible recommendations" as part of a "comprehensive discussion on Israel's foreign policy".

Stalled talks

The Obama administration has been struggling for months to pressure Israel to freeze settlement construction on occupied land, a key Palestinian demand for restarting talks.

Israel has countenanced a temporary limit on construction in the West Bank, but not in occupied East Jerusalem.

The fate of East Jerusalem and Palestinian refugees have not been the subject of the latest peace efforts.

Palestinians and Arab states say there must be a just and fair solution to these issues, while successive Israel governments have sought to keep all of Jerusalem under their control and argued that a right of return for Palestinian refugees would mean the end of the Jewish majority in Israel.

President Barack Obama called the refugees' situation "intolerable" but has not backed their right of return.

Jerusalem in recent days has been the scene of rising tensions and sporadic clashes, focused on access to the al-Aqsa mosque compound, known to Jews as the Temple Mount, a flashpoint site in the Old City.