United States Secretary of State Hillary Clinton says Israel and the Palestinians have agreed to resume direct negotiations for the first time since December 2008.
Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President, Mahmoud Abbas, have been invited to Washington on 2 September to start the talks.
They have agreed to place a time limit of one year on the negotiations. But the BBC reports prospects of a comprehensive deal are seen as slim.
Sensitive issues - including the construction of Jewish settlements on occupied territory, the status of Jerusalem, the borders of a future Palestinian state and the right of return - will be difficult to overcome.
Chief Palestinian negotiator Saeb Erekat says he hopes the Israelis will make every effort to ensure the talks are a success. Mr Netanyahu says success will be difficult to achieve - but possible.
However, Hamas, says it will not attend the talks and will not recognise any results.
"There have been difficulties in the past, there will be difficulties ahead. Without a doubt, we will hit more obstacles," Mrs Clinton said.
"But I ask the parties to persevere, to keep moving forward even through difficult times and to continue working to achieve a just and lasting peace in the region," she added.
The Palestinians say they will pull out of the talks if the Israeli government announces the building of new settlements.
Mr Erekat says any new Israeli building work on lands the Palestinians seek for a state, would cause them to withdraw .
A 10-month partial moratorium on settlement building in the West Bank is due to end on 26 September.
President Mubarak of Egypt and King Abdullah of Jordan will also attend the talks, as will Tony Blair, the special representative of the Middle East quartet - which comprises the US, the UN, the EU and Russia.
President Barack Obama will hold meetings with the four leaders, followed by a dinner with them, on 1 September.
A meeting at the state department between Mrs Clinton, Mr Abbas and Mr Netanyahu will formally relaunch the direct peace talks the following day.