* Obama says breaking logjam means all sides taking risks * Mubarak says Arab states awaiting start of peace talks (Updates with fresh quotes, details) By Ross Colvin WASHINGTON, Aug 18 (Reuters) - U.S. President Barack Obama, said on Tuesday he saw encouraging signs that Israel's resistance to his call to freeze settlement-building in the occupied West Bank was weakening. Earlier on Tuesday, an Israeli government minister said no tenders had been issued for new housing projects in settlements since Prime Minister Benjamin Netanyahu's right-leaning government took office five months ago. Netanyahu has rejected Obama's push for a complete freeze and the impasse has created the most serious rift in U.S.-Israeli relations in a decade. Palestinian President Mahmoud Abbas says he will not resume peace talks with Israel until it stops adding to its settlements. "There has been movement in the right direction," Obama said when asked about the latest development after talks with Egyptian President Hosni Mubarak, 81, at the White House. While Netanyahu appeared to be trying to appease Washington, Israeli anti-settlement group Peace Now said construction was continuing on 1,000 housing units. "My hope is that we are going to see not just movement from the Israelis, but also from the Palestinians around issues of incitement and security, from Arab states that show their willingness to engage with Israel," Obama said. The two leaders, meeting for the third time in as many months, discussed how to jump-start the stalled peace process, a high foreign policy priority for Obama since taking office. The emergence of a hardline Israeli government and divisions among the Palestinians have stymied his efforts. TAKING RISKS It was Mubarak's first U.S. visit since 2004. He had stayed away to show displeasure with former President George W. Bush's calls for democracy in the Arab world and his administration's criticism of human rights in Egypt. Mubarak said differences with the former Bush administration had not hurt relations with Washington, which continues to send $1.5 billion in direct aid to its ally annually, making Cairo one of the top U.S. aid recipients. The visit comes as the Obama administration has been pushing moderate Arab states to take conciliatory steps that could encourage Israel to freeze settlement building. Mubarak, however, suggested gestures would only come after Israel resumed negotiations. "If negotiations start this will lead the Arab states to support the peace process and to move it forward," he said. Arab states have put the onus on Israel to revive the peace process, while Israel has said the Palestinians and Arab states must first do more to advance the process. "Everybody is going to have to take some risks," Obama said. Obama said he was encouraged by what he was seeing in the West Bank, where Palestinian security forces had "greatly improved." Abbas's Palestinian Authority controls the West Bank, while the Islamist group Hamas, sworn to Israel's destruction, rules the Gaza Strip. Human rights groups had hoped Obama would press Mubarak for democratic reforms. Mubarak said he had told Obama "very frankly and very friendly" he had campaigned for election on a platform of reform and had begun to implement change. Human Rights Watch has called Mubarak an authoritarian ruler "presiding over a system in which opponents are muzzled and imprisoned, and where torture is widespread."(Additional reporting by Matt Spetalnick; editing by Alan Elsner)
An Israeli security guard watches as a Palestinian woman holds up her child in front of a house during a rally in Sheikh Jarrah neighborhood in East Jerusalem August 15, 2009, ...
