* Obama due to attend Middle East talks in Washington
* Israeli, Palestinian sides expected to agree to attend
* World powers draft invitation for 12 months of talks
* No explicit mention of Israeli settlement freeze
By Jeff Mason and Douglas Hamilton
VINEYARD HAVEN, Mass./JERUSALEM, Aug 19 (Reuters) - World powers facing a fateful deadline in the Middle East peace process will invite Israelis and Palestinians to begin direct talks on Sept. 2 in Washington, a diplomatic source said on Thursday.
Envoys from the so-called Quartet of powers — the United States, the European Union, Russia and the United Nations — have been discussing a draft statement inviting the two sides to talks intended to conclude a treaty in one year, diplomatic sources said.
Envoys from the Quartet agreed to the details on Thursday, one source told Reuters. A formal statement is slated to be issued on Friday.
"They’ve got an agreement that the talks will start on Sept. 2 in Washington," said the source, speaking on condition of anonymity.
The Israelis and Palestinians were expected to agree to attend, and President Barack Obama would be present at the talks, the source said.
The White House declined to comment late on Thursday. Obama is currently on vacation in Massachusetts.
The Quartet said in June that peace talks would be expected to conclude in 24 months, but the new draft says 12 months. The Palestinian Authority government intends to have established all the attributes of statehood by mid-2011.
Diplomats say the idea that a unilateral declaration of statehood could win support if talks do not start or collapse in the next 12 months is gaining interest.
The peace process resumed in May after a hiatus of 19 months but is stalled over the terms of an upgrade from indirect talks mediated by U.S. envoy George Mitchell to direct negotiations.
Israel insists it is ready for direct talks provided there are no preconditions. The Palestinians are ready provided there is a clear agenda. Israel says an agenda means preconditions.
Resolving the snag over terms is crucial, diplomats say.
The "invitation to talks" statement by the Quartet has been awaited since Monday.
FACE TO FACE
Obama wants face-to-face talks started well before Sept. 26, when Israel’s 10-month moratorium on Jewish settlement building in the occupied West Bank is due to end. Full-scale return to settlement construction could sink the talks for good.
U.S. Secretary of State Hillary Clinton spoke by telephone with the Quartet representative, former British Prime Minister Tony Blair, as well as Jordanian Foreign Minister Nasser Judeh Thursday as Washington kept up pressure for talks to resume.
State Department spokesman P.J. Crowley said: "We believe we are getting very close to an agreement to enter into direct negotiations. We think we’re well positioned to get there. But we continue to work on the details of this process."
Clinton also spoke to Egyptian President Hosni Mubarak about the peace process on Thursday afternoon, Crowley noted.
The Quartet draft reaffirms a "full commitment to its previous statements." Quartet statements from Moscow, Trieste and New York this year called for a halt to settlement building.
The draft, however, does not explicitly repeat that demand, which would be rejected by right-wingers in Israeli Prime Minister Benjamin Netanyahu’s center-right coalition.
It simply says that direct, bilateral negotiations that resolve all final status issues should "lead to a settlement, negotiated between the parties, that ends the occupation ... and results in" a state at peace with Israel.
It says negotiations "can be completed within one year." Success will require the sustained support of Arab states, it adds.
Netanyahu may benefit from a move to direct talks, countering the notion abroad that he is not a genuine peace-seeker.
Palestinian President Mahmoud Abbas, by contrast, has a lot to lose politically. He could be destroyed if he emerged from the process after months of talking as a failed appeaser.
If accepted by Netanyahu as the basis for talks, the Quartet invitation could give Abbas the backing he needs.
Few Palestinians or Israelis believe direct talks would lead to a peace treaty soon, or that one would be quickly implemented if it were ever agreed.
In Israel’s coalition, attention is focused on the Sept. 26 settlement moratorium deadline, with a majority of Netanyahu’s inner cabinet opposed to extending the settlement freeze, but a minority seeking some compromise that Abbas could swallow.
One idea is to allow building in big established settlements that Israel expects to keep in a peace deal but not in those it would hand over in a land swap with the Palestinians.
(Additional reporting by Ali Sawafta in Ramallah, Luke Baker in Brussels and Andrew Quinn in Washington; Editing by Will Dunham)