Palestinians Say Hope in Obama Has 'Evaporated'

That's the damning message contained in a memo circulated among the top leadership of the Palestinian faction Fatah, the faction which is led by the moderate President Mahmoud Abbas, head of the Palestinian Authority.

A copy of the internal memorandum was obtained by the Associated Press in Ramallah and its contents confirmed to ABC News by senior Palestinian sources. It accuses the Obama administration of backing down on its calls for an Israeli settlement freeze, a move that sources say has damaged the political credibility of moderate Palestinians.

Tuesday's publication of the memorandum comes just days after Obama received the Nobel Peace Prize, and the latest visit to the region of his special Mid East envoy George MitchellGeorge Mitchell ended without progress.The search for a comprehensive solution to the decades old Israeli-Palestinian conflict is one of the main planks of the administration's foreign policy.

Earlier this year both Obama and Secretary of State Hillary ClintonHillary Clinton called on the Israeli government of Prime Minister Benjamin NetanyahuBenjamin Netanyahu to stop all construction in the West Bank settlements. The call was designed to encourage the Palestinians back to the negotiating table and was a stricter recognition of the stipulations contained in the internationally agreed Road Map for peace.

The Israelis said such a demand was unreasonable and complained that a certain amount of continued building was essential. It has also refused to consider any limits on construction in East Jerusalem, where the Palestinians want to establish their future capital. The current Israeli government is comprised of parties that have long supported aggressive settlement building.

Months later no agreement has been reached on the settlement freeze and in a recent meeting in New York Obama appeared to soften his position on settlement building as a pre-condition for talks.

"All hopes in the new U.S. administration of President Obama have evaporated," said the document issued by Fatah's Office of Mobilization and Organization.It went on to say Obama "couldn't withstand the pressure of the Zionist lobby, which led to a retreat from his previous positions on halting settlement construction and defining an agenda for the negotiations and peace."

ABC News has learned from senior Palestinian government sources that Abbas and his colleagues are deeply disappointed by what is being called a U.S. "retreat."

They also claim it was intense U.S. pressure that led to the Palestinians deferring debate on the highly critical Goldstone Report into Israel's military operation in Gaza. This move was quickly condemned by Palestinians across the political spectrum and became a political embarrassment for Abbas.

In Gaza posters of Abbas appeared with a black cross through his face. Passing Palestinians were filmed hurling their shoes at the posters, a grave insult in Islamic society, and Hamas accused Abbas of being a traitor. Even in Ramallah, the West Bank seat of Abbas's Palestinian Authority, there were angry demonstrations.

The result has been a further reduction in the standing of the Palestinian president, already seen by many of his people as being too close to Israel and the U.S.

Palestinian sources tell ABC News leaders of the Palestinian Authority believe Obama is reneging on his earlier commitments and that U.S. pressure to restart peace talks at any cost is undermining the credibility of moderates, and playing into the hands of extremists such as Hamas.

The hopes kindled by the president's historic speech in Cairo have quickly turned to frustration.