By Arathy Somasekhar

(Reuters) - Oil prices edged lower on Tuesday as Israel accepted a proposal to tackle disagreements blocking a ceasefire deal in Gaza, helping ease worries about a supply disruption in the Middle East.

Brent crude fell 12 cents, $2.02, or 0.15%, to $77.54. Front month U.S. West Texas Intermediate crude futures, which expire on Tuesday, were at $74.23 a barrel, easing 14 cents, or 0.2%. The more actively traded second month contract was down 15 cents or 0.2% at $73.52.

Brent had fallen about 2.5% on Monday, while WTI eased 3%.

U.S. Secretary of State Antony Blinken said on Monday Israeli Prime Minister Benjamin Netanyahu had accepted a "bridging proposal" presented by Washington to tackle disagreements blocking a ceasefire deal in Gaza, and urged Hamas to do the same.

However, with the Palestinian Islamist group announcing a resumption of suicide bombing inside Israel after many years, and claiming responsibility for a blast in Tel Aviv on Sunday night, and medics saying Israeli military strikes killed at least 30 Palestinians across the Gaza Strip on Monday, there are few signs of conciliation on the ground and fears of wider war.

Also easing supply concerns, production at Libya's Sharara oilfield has risen to about 85,000 barrels per day in a move aimed at supplying the Zawia oil refinery, two engineers working at the field told Reuters on Monday.

Libya's National Oil Corporation (NOC) had declared force majeure on oil exports from the field on Aug. 7 after a blockade by protesters hit production at the 300,000-bpd field.

In the United States, crude stockpiles were expected to have fallen by 2.9 million barrels last week, a preliminary Reuters poll showed on Monday.

On the demand side, worries about China's economic problems also pressured oil prices. After a dismal second quarter, the world's second-largest economy lost momentum further in July as new home prices fell at the fastest pace in nine years, industrial output slowed, export and investment growth dipped and unemployment rose.

Meanwhile, investors also awaited indication of the U.S. Federal Reserve's plans for the next interest rate decision.

The Fed will cut interest rates by 25 basis points at each of the remaining three meetings of 2024, one more reduction than predicted last month, according to a slim majority of economists polled by Reuters who said a recession is unlikely.

Fed members Mary Daly and Austan Goolsbee over the weekend flagged the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.

Fed Chair Jerome Powell speaks in Jackson Hole on Friday and investors assume he will acknowledge the case for a cut.

Rate cuts reduce borrowing costs and could boost oil demand in the world's top oil-consuming country.

A looming labour dispute at Canada's two main railroads is unlikely to significantly reduce oil exports or shut-in production in Canada, thanks to excess capacity on Trans Mountain and other pipelines, people close to the matter said.