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U.S. Secretary of State Hillary Clinton offered aid on Tuesday to boost ties with the Muslim world and urged Israel, the Palestinians and Arab countries to move beyond recrimination in the search for peace.

“We are determined and persistent in the pursuit of that goal,” she said in a speech at a development forum in Morocco attended by Arab ministers.

After a weekend of heated words about the perceived U.S. tilt toward Israel on the issue of settlements on the occupied West Bank, Clinton said it was important for all sides to “be careful about what we say” and avoid angry rhetoric.

“We need to work together in a constructive spirit toward this shared goal of a comprehensive peace. I believe very strongly that it is attainable … (and) that with your support we can find a way through.”

Clinton’s speech unveiled a modest new set of aid proposals aimed at building on President Barack Obama’s promise in a June address in Cairo to make a “new beginning” on Washington‘s strained ties with the Islamic world.

But it came after Clinton sparked a new outburst of Arab anger by praising Israeli Prime Minister Benjamin Netanyahu‘s offer of “restraint” on settlements without repeating earlier U.S. calls for a freeze on them, which is the Palestinian position.

Clinton repeated that the United States is committed to reaching a two-state solution for Israel and the Palestinians, saying this was a key to achieving a peaceful and prosperous future for the region.

Hoping to cast the United States as a helpful partner in development for Muslim communities, Clinton outlined a series of small steps to increase funding for civil society groups, youth empowerment and job promotion.

“We are committed to building ladders of opportunity to help develop the enormous talent that resides in the people of this region,” she said.

The programmes Clinton announced on Tuesday include a $76 million project to boost economic opportunities in Yemen, a $30 million project for vulnerable young people in Jordan and an entrepreneurship summit in Washington next year to bring Muslim innovators together with U.S. business leaders.

Taken together the new package pales in comparison to the billions of dollars in aid that Washington extends to governments in the region, including both Israel and Egypt.

SETTLEMENT ANGER

Obama’s Cairo speech had sparked some hope in the Arab world that Washington was ready to take a tougher line with Israel, with the U.S. president saying flatly that Israel should stop building settlements on the West Bank.

Those hopes turned to anger as Washington backed off.

On Monday, Clinton sought to control the damage, saying that her praise on Saturday for Israel’s offer of restraint on settlements was aimed at encouraging moves toward dialogue.

Clinton said the Obama administration still believed that Israel’s offer fell short of U.S. expectations, and urged both sides to take more positive steps to set the stage for resuming peace talks stalled since December.

Clinton will travel from Morocco to Egypt for a meeting on Wednesday with Egyptian President Hosni Mubarak which was also expected to focus on the stalled Israeli-Palestinian peace process.

“Obviously Egypt is a key player in Mideast peace and she thought it was important while here in the region to consult,” State Department spokesman P.J. Crowley said.

After Clinton’s visit to Jerusalem, Palestinians accused the United States of “back-pedalling” on settlements and said a resumption of Israeli-Palestinian talks was not in sight.

Netanyahu has proposed limiting building for now to some 3,000 settler homes already approved by Israel in the West Bank. He does not regard building in occupied East Jerusalem, annexed in defiance of international opposition, as settlement.

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