In his fifth visit in as many months, Kerry met Netanyahu for dinner in a hotel and was later to drive to Amman to meet Palestinian president Mahmud Abbas tomorrow, with possible further shuttling if he sees an opening.
At the start of their meeting Kerry and Netanyahu shook hands for the cameras but did not speak to reporters.
Kerry, who met Jordan's King Abdullah II in Amman before his brief trip to Jerusalem, is seeking to break a three-year stalemate and restart direct negotiations that would ultimately lead to an independent Palestinian state.
"Peace rests on security. It is not based on goodwill or legitimacy as some think. It is based, first and foremost, on our ability to defend ourselves," he told a ceremony marking the anniversary of the death of Theodor Herzl, the founding father of Zionism.
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The remarks come after the Haaretz newspaper quoted an anonymous "senior cabinet member" from Netanyahu's Likud party as saying the premier would be ready to give up almost all of the West Bank if Israel's security needs were met.
"Netanyahu knows there will be a painful evacuation of a number of settlements that are not in the settlement blocs, and that there will be a land swap," Science and Technology Minister Yaakov Peri told army radio.
"Netanyahu is much more ready than in the past, whether it's for ideological or practical reasons, for an immediate return to the negotiating table," said Peri, of the centrist Yesh Atid party.
The day before Kerry's arrival, an Israeli planning committee granted final approval for the construction of 69 new settler homes in annexed east Jerusalem.