UPDATE 2-Israeli president plays down settlement work

* Peres says settlement construction "marginal" issue

* Mubarak calls for "courageous decisions" from Israel

* Palestinians say Israel "equivocating" on settlements

(Updates with Fayyad comments, paragraphs 6-7)

By Cynthia Johnston and Yasmine Saleh

CAIRO, Nov 22 (Reuters) - Israel's president said on Sunday expanding Jewish settlements in the occupied West Bank was a "marginal" issue blocking resumption of peace talks with the Palestinians.

But Egyptian President Hosni Mubarak, speaking at a joint news conference with Shimon Peres, said Israeli construction work on land captured in a 1967 war should stop and that Israel should take "courageous decisions" to push forward peace.

Egypt and other Arabs have blamed the United States for not doing enough to press Israel to stop settlement building work.

Prime Minister Benjamin Netanyahu has balked at Washington's calls for a full settlement freeze, saying Israel must accommodate the "natural growth" of settler families.