Israeli and Palestinian negotiators set an ambitious goal to reach an elusive peace deal within nine months Tuesday, despite warnings of obstacles and provocations ahead.

Standing side-by-side with US Secretary of State John Kerry, who has dragged them back to the negotiating table after months of shuttle diplomacy, officials from both sides, said it was time to end their decades-old conflict.

"I can assure you that in these negotiations, it's not our intention to argue about the past, but to create solutions and make decisions for the future," Israel's chief negotiator Tzipi Livni told her Palestinian counterpart Saeb Erakat.

"I believe that history is not made by cynics. It is made by realists who are not afraid to dream. And let us be these people," she insisted.

"No one benefits more from the success of this endeavor than Palestinians," Erakat agreed. "It's time for the Palestinian people to have an independent sovereign state of their own."

Both sides have agreed to meet again "within the next two weeks" either in Israel or the Palestinian territories to begin formal direct, bilateral negotiations, Kerry said.

"Our objective will be to achieve a final status agreement over the course of the next nine months," he added at the end of two days of talks in Washington.

He again urged compromise, saying: "We cannot pass along to another generation the responsibility of ending a conflict that is in our power to resolve in our time."

But US officials said no-one was under any illusion that the path ahead was going to be easy.

"There will be provocations. Everybody knows that there will be people on both sides who will do things that will make things more difficult," a senior White House official told reporters.

"We hope that the parties will understand that and realize what's going on and do what they can to not be provoked into letting those who are determined to interfere with the process succeed."

The Obama administration's last foray into the intractable Arab-Israeli conflict ended in failure, when talks launched in September 2010 collapsed just weeks later over continued Israeli settlement building.

Kerry, who has staked much of his reputation as secretary of state on his single-minded pursuit of a Middle East peace deal, said all the contentious core issues would be on the table.

The so-called "final status issues" include such emotive and difficult problems as the right of return for Palestinian refugees, ejected from their lands with the 1948 creation of Israel; the exact borders of a Palestinian state, complicated by the mushrooming of Jewish settlements across the occupied West Bank; and the fate of the holy city of Jerusalem claimed by both sides as a future capital.

Officials confirmed they have not sought assurances from the Israelis this time around to freeze settlement construction, which had been one of the main demands of the Palestinians for returning to the talks.

"You're likely to see some settlement activity continued," a senior State Department official said.

And while it remains the US position that any future Palestinian state would be based on the 1967 borders before Israel seized the West Bank with mutual land swops, he said "it would not be safe to say that the parties have accepted that as the basis for negotiation."

The officials said it had not yet been decided in what sequence each of the core issues would be addressed, neither was there an exact timetable for the talks going forward. But Kerry "already feels the clocking ticking," the State Department official said.

The United States sees its main role now in the talks as a "facilitator," with new US envoy to the peace talks Martin Indyk preparing to spend time in the region to work on the negotiations on a "day-to-day" basis.

Earlier, President Barack Obama lent his weight to the fresh peace initiative, meeting with both Livni and Erakat at the White House.

"He underscored that there is much to do in the days and months ahead," White House spokesman Jay Carney told reporters, adding the president had also praised the "leadership and courage they have shown in coming to the table."

Kerry had broken the ice late Monday by hosting an iftar dinner at which Livni and Erakat sat side-by-side to end the Muslim day of fasting for Ramadan.