* Halfway to peace deadline, Kerry encounters "difficulties"
* Says "some progress" made
* Will meet Netanyahu and Israeli finance minister Friday (Adds Erekat, paras 3-4; Kerry to meet Netanyahu and finance minister Friday)
By David Brunnstrom
RAMALLAH, West Bank, Dec 5 (Reuters) - Palestinians held talks with U.S. Secretary of State John Kerry on Thursday on a possible future peace accord with Israel and emerged with mixed descriptions of how much common ground they had found with Israel's most vital ally.
One Palestinian official told Reuters his side had rejected Kerry's ideas for future security arrangements, without giving details of the proposals.
But Palestinian chief negotiator Saeb Erekat told the official Palestinian news agency Wafa that report was "completely incorrect". Erekat stressed Kerry had not presented a final proposal and that talks would continue.
Erekat could not immediately be reached by Reuters and gave no further details on the talks.
The first official, who spoke to Reuters on condition of anonymity, said Kerry presented the proposals to Palestinian President Mahmoud Abbas after discussing them separately with Israeli Prime Minister Benjamin Netanyahu.
"The Palestinian side rejected them because they would only lead to prolonging and maintaining the occupation," the official said, referring to Israel's hold on the West Bank, where, along with Gaza and East Jerusalem, Palestinians seek an independent state.
Israel has long insisted on keeping swathes of its West Bank settlements, as well as a military presence on the territory's eastern boundary with Jordan, under any peace deal.
In remarks to reporters after his three-hour meeting with Abbas in the West Bank hub city of Ramallah, Kerry commended "his steadfast commitment to stay at the peace negotiations, despite the difficulties that he and the Palestinians have perceived in the process".
Kerry said they had discussed "at great length issues of security in the region, security for the state of Israel, security for a future Palestine".
"I think the interests are very similar, but there are questions of sovereignty, questions of respect and dignity which are obviously significant to the Palestinians, and for the Israelis very serious questions of security and also of longer-term issues of how we end this conflict once and for all," he added.
Abbas did not join Kerry at the Ramallah media appearance.
Disputes over proposed Israeli land handovers have bedevilled peace efforts for two decades, along with other issues like the status of Jerusalem and fate of Palestinian refugees. Kerry revived the talks in July and set a nine-month target for an accord, but both sides have signalled pessimism.
Palestinians worry that Israel's settlements - deemed illegal by most world powers - will not leave room for a viable state.
Israelis question whether Abbas could commit the rival, armed Palestinian Hamas Islamists who govern Gaza to coexistence with the Jewish state. Israel quit Gaza unilaterally in 2005, after which Hamas came to power there. The sides have repeatedly exchanged fire since.
Kerry, who had met Netanyahu earlier on Thursday, said "some progress" had been made in the peace talks. He returned to Jerusalem in the evening to confer again with the Israeli leader for over three hours, and was due to meet him again on Friday.
Acknowledging Israel's fear that ceding the West Bank could make it vulnerable to attack, Kerry said he offered Netanyahu "some thoughts about that particular security challenge".
Neither he nor Netanyahu gave further details, citing the need to keep the diplomacy discreet. Both described Israeli security as paramount, something Netanyahu said would require that his country "be able to defend itself by itself".
Israeli media have reported that Kerry's proposals include security arrangements for the Jordan Valley, between the West Bank and Jordan. An Israeli official said that in recent weeks U.S. officials had visited Jordan Valley crossing points.
Kerry was due on Friday to meet Israeli Finance Minister Yair Lapid before meeting Netanyahu and later to leave the region.
The Israeli Defence Ministry announced he would be taken on a helicopter tour of the West Bank and other areas with Israeli Defence Minister Moshe Yaalon, but later cancelled the tour without giving a reason.
In Ramallah, Kerry said he might return to the region for more talks next week "depending on where we are".
"So the discussions will go on, the effort will continue, and our hopes with them for the possibilities of peace for the region," he said. (Writing by Dan Williams; Editing by Andrew Roche)