Israeli and Palestinian officials have met for direct talks for the first time in three years, with the United States urging both sides to make the tough compromises needed to reach a peace deal.

In a symbolic message of peace and tolerance, Israeli chief negotiator Tzipi Livni and her Palestinian counterpart Saeb Erakat sat down side-by-side opposite US top diplomat John Kerry to share a traditional Muslim itfar meal just after sunset.

"It was a constructive and productive meeting between the parties. They engaged in good faith and with seriousness of purpose," a senior State Department official said in a statement, after the dinner lasting about 90 minutes.

"We are looking forward to continuing the talks tomorrow morning."

Obama warns of challenges ahead

President Barack Obama has welcomed the start of the talks, calling it a "promising step" forward but warning of "hard choices."

"The most difficult work of these negotiations is ahead, and I am hopeful that both the Israelis and Palestinians will approach these talks in good faith," he said.

Obama promised the United States was ready to support both sides "with the goal of achieving two states, living side by side in peace and security."

Kerry also warned earlier that "many difficult choices lie ahead for the negotiators and for the leaders as we seek reasonable compromises on tough, complicated, emotional and symbolic issues.

"I think reasonable compromise has to be a keystone of all of this effort."