JERUSALEM, July 1 (Reuters) - Israeli Defence Minister Ehud Barak was quoted as saying on Wednesday that Israel was close to an understanding with Washington on Jewish settlements, but ruled out a total freeze.

In an Israel Radio interview to be aired later in the day, Barak said Israel was insisting on completing construction projects already under way in settlements in the West Bank, the state-owned broadcaster reported on its website.

Barak held talks in New York on Tuesday with U.S. Middle East envoy George Mitchell in a bid to end a rare rift between Israel and its main ally on the settlement issue.

The radio quoted him as saying that Israel was now nearing an understanding with the United States, which has called for a complete halt to settlement activity.

Barak told reporters in New York that the meeting with Mitchell, which lasted more than four hours, was "positive" but there were still "differences".

In a joint statement issued after their talks, Barak and Mitchell said they had discussed the full range of issues related to Middle East peace and security. The statement said the discussions were constructive and would soon continue.

Asked by reporters whether Israel would declare a temporary settlement building freeze, Barak said: "I think that it's a little bit too early to predict.

"We are considering every positive contribution Israel can make towards the taking off of a significant important peace effort," he said.

Mitchell, who posed for photographers at the start of the meeting in a New York hotel, did not take questions.

Israel's biggest newspaper Yedioth Ahronoth reported on Sunday that Barak would propose a three-month halt to construction starts in settlements but allow current building work to continue.

Palestinian President Mahmoud Abbas has said U.S.-backed peace talks with Israel could not resume until it froze settlement.

Barak told reporters that a meeting between Mitchell and Israeli Prime Minister Benjamin Netanyahu was being arranged in the next one to three weeks.

The two had planned a meeting in Paris last Thursday but it was put off by Israel, which said it needed more time to prepare. Netanyahu has said he would allow some construction to continue to match population growth within existing settlements. (Additional reporting by Daniel Bases in New York, Writing by Jeffrey Heller, Editing by Dominic Evans)

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