The latest diplomatic push follows months of intense shuttle diplomacy by US secretary of state John Kerry who said a week ago the groundwork had been laid for a breakthrough, while setting no specific date for talks to restart.
"Today Kerry spoke with Palestinian Authority President Mahmoud Abbas and Israeli Prime Minister (Benjamin) Netanyahu and personally extended an invitation to send senior negotiating teams to Washington to formally resume direct final status negotiations," state department spokeswoman Jen Psaki said in a statement on Sunday.
"Initial meetings are planned for the evening of Monday July 29 and Tuesday July 30," she said.
Nabil Abu Rdaineh, a senior aide to Abbas, who was in Amman, said the Palestinian leader had received Kerry's invitation there from the US ambassador to Jordan and that his negotiating team would be in Washington on Monday.
Israeli negotiators were set to fly to Washington late on Sunday, a government official said.
The US-sponsored talks broke down in late 2010 in a dispute over Israeli settlement construction in the West Bank, which Palestinians say denies them a viable state.
Netanyahu's cabinet cleared the way earlier on Sunday for the renewal of the talks by approving the release of 104 Palestinian prisoners.
Thirteen ministers voted in favour of the release, seven voted against and two abstained, a government official said.
"The cabinet has authorised the opening of diplomatic talks between Israel and the Palestinians," said a statement issued by the prime minister's office.
Netanyahu had urged divided rightists in his cabinet to back the prisoner deal.
"This moment is not easy for me, is not easy for the cabinet ministers, and is not easy especially for the bereaved families, whose feelings I understand," he said when the cabinet met, referring to families who have lost members in militant attacks.
"But there are moments in which tough decisions must be made for the good of the nation and this is one of those moments."
Prisoner release
Justice minister Tzipi Livni, who is set to head Israel's negotiation team and will be accompanied by Netanyahu confidant Yitzhak Molcho, told her cabinet colleagues that resuming talks with the Palestinians was a vital national interest.
"Today's cabinet decision is one of the most important for the future of Israel ... Starting a (peace) process is in Israel's security and strategic interests," Livni said.
Abbas has demanded the release of prisoners held since before a 1993 interim peace accord took effect. Israel has jailed thousands more Palestinians since then, many for carrying out deadly attacks.
The prisoner release would allow Netanyahu to sidestep other Palestinian demands, such as a halt to Jewish settlement expansion and a guarantee that negotiations over borders will be based on boundaries from before the 1967 Middle East war, when Israel captured the West Bank, Gaza Strip and East Jerusalem.
Chief Palestinian negotiator Saeb Erekat, who will be accompanied to Washington by Mohammed Ishtyeh, an Abbas aide, welcomed Israel's decision, which he said had come 14 years late. He pledged to work to free all prisoners held by Israel.
"This Israeli cabinet decision is an overdue step towards the implementation of the Sharm el-Sheikh agreement of 1999," he said in a statement. "We call on Israel to seize the opportunity ... to put an end to decades of occupation and exile and to start a new stage of justice, freedom and peace for Israel, Palestine and the rest of the region."
In any future peace deal, Israel wants to keep several settlement blocs and East Jerusalem, which it annexed as part of its capital in a move never recognised internationally.
Hundreds of protesters from the Popular Front for the Liberation of Palestine (PFLP) staged a rally against the resumption of peace talks, clashing with police in the West Bank city of Ramallah, the seat of Abbas's Palestinian Authority.
PFLP activists also demonstrated in Gaza and chanted: "Listen Abbas, our land is not for sale... The (Palestinian) cause will never be resolved except by the rifle."
Appealing for support on his Facebook page on Saturday, Netanyahu said the inmates would be freed in groups only after the start of talks, expected to last at least nine months.
Israeli Channel 1 television said prisoners would be released in three stages, depending on progress in the talks, with a group who are Israeli citizens left until the last stage.
The 22-member cabinet also discussed legislation that would require a referendum on any statehood deal reached with the Palestinians involving a withdrawal from land Israel captured in the 1967 war. It will be sent for parliamentary debate shortly.
Before the cabinet meeting, Netanyahu told ministers from his Likud party that Israel would pay a price if peace talks did not resume, according to one official who was there.
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