THURMONT, Md., July 25 (AP)--The Middle East peace talks at Camp David collapsed Tuesday over rival claims to East Jerusalem. Disappointed, President Clinton said he tried several approaches but could not come up with a solution.

Palestinian sources said the breaking point was Israel's refusal to recognize Palestinian sovereignty over Jerusalem's walled Old City, offering only access to the al-Aqsa mosque, the third-holiest site in Islam.

Israeli sources portrayed Prime Minister Ehud Barak as far more generous, offering at first municipal control of some Arab neighborhoods and then proposing Palestinian sovereignty over them.

A Palestinian spokesman told The Associated Press that Israel's offer of limited sovereignty was unacceptable and a "nonstarter." He said the Palestinians insisted on sovereignty over the entire Old City--including the Jewish Quarter that houses the Western Wall, Judaism's holiest site.

The Old City also contains such Christian holy sites as the Church of the Holy Sepulcher, which stands on the traditional site of Jesus' crucifixion and burial.

"They couldn't get there; that's the truth," Clinton said of the negotiations after he was back at the White House following conclusion of two weeks of intensive talks with Barak and Palestinian leader Yasser Arafat.

"This is agonizing for both of them," Clinton said at a hastily arranged news conference. "I think they both remain committed to peace. I think they both will find a way to get there if they don't let time run away from them."

Clinton's own time to arrange a historic settlement could be running out. With less than six months left in office, his legacy as a peacemaker rested on the summit talks at the presidential retreat in Maryland's Catoctin mountains.

He was skeptical of bringing Barak and Arafat back to Camp David for another try but said peace was the goal, not which American president helped achieve it between two people destined to live side by side and to share "a common future."

The Israeli and Palestinian delegations said in a statement they intended "to continue their efforts to conclude an agreement on all permanent status issues as soon as possible."

They also said they understood the importance of avoiding unilateral actions--an implicit pledge by Arafat not to declare a Palestinian state outside negotiations with Israel.

And, in a gesture to Arafat, the statement said the only path to peace were resolutions adopted by the U.N. Security Council after Middle East wars in 1967 and 1973. These call for Israel to relinquish territory won from the Arabs in exchange for secure borders.

Arafat several times has said he would declare statehood if no agreement was reached by September 13, a deadline set by him and Barak.

Tayeb Abdel Rahim, a top Arafat aide, blamed Barak for the failure, saying he entered the talks with his "no's." "The Israeli position was the cause of failure," he said.

Clinton credited both sides with seeking a compromise on the future of Jerusalem, but suggested Barak took bolder steps than Arafat.

"The Palestinians changed their position, they moved forward," Clinton said, lifting the veil of secrecy he had imposed on the details of the negotiations. "The Israelis moved more."

At another point, Clinton said, "Prime Minister Barak showed courage and vision," and Arafat "made clear he remains committed to peace."

Abdel Rahim said Arafat would tour Arab countries and urge them to convene a summit of foreign ministers to work on a unified Arab position.

"We are going to implement what has been decided at the PCC [the Palestinian Central Council] to declare the sovereignty of the Palestinian state on Palestinian land," he said.

Hassan Abdel Rahman, the PLO's representative in Washington, said in an interview with APTN that he hoped peace talks would continue because "the alternatives to a peace agreement are very ugly."

Barak, at a news conference, warned: "If there will be a unilateral declaration, we will be forced to make unilateral acts of our own."

A senior U.S. official said at the State Department: "We will not support unilateral moves. Our focus will continue to be on good-faith negotiations."

Barak's spokesman, Gadi Baltiansky, told Israel radio that over the summit's last two days, it had become clear the Palestinians were maintaining "extreme, unreasonable positions."

The collapse occurred overnight, as Clinton engaged in another protracted session with Israeli and Palestinian negotiators.

At 3 a.m. Tuesday, Arafat sent a letter to Clinton saying he saw no point in continuing because the Israeli position on Jerusalem could never lead to an agreement, Palestinian sources said.

"If you ask me, 'Did they make enough progress to get this done?' Yes," Clinton said. "But they've got to go home and check, they've got to feel around.

"I feel that we have the elements here to keep this process going.... I think it can happen," Clinton said.

Reaction to the breakdown was quick.

"This failure is another indication that the only choice we have is resistance," said Hamas leader Sheik Ahmed Yassin. "Only by force are we able to retain our rights.... We are ready to become martyrs, and we say one short sentence: They will pay a high price if they think to attack us and reoccupy the land."

Barak had vowed never to divide Jerusalem, which Israel reunited in the 1967 Six-Day War by forcing Jordanian troops to surrender the Old City.

At the same time, he offered a series of concessions from the outset, including transferring much of the West Bank to the Palestinians, dismantling of most Jewish settlements, and permitting thousands of Palestinian refugees to live in Israel.

As a result, Barak lost the support of three political parties that had been in his government, and his foreign minister, David Levy, declined to go to the summit with him.

Former Prime Minister Benjamin Netanyahu, in a rare news conference broadcast live in prime time Tuesday on Israel's two television channels, said before the talks broke down that Barak must reject any deal that would call for sharing sovereignty over Jerusalem with the Palestinians.

Netanyahu said he wanted to avert a "ripping apart" of Israeli society "that could happen in the next few days," adding, "What we hear from most of the reports out of Camp David does not answer our hopes."

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