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Times Online:

Tim Reid, in Washington

Israeli Jewish settlers try to rebuild a structure demolished earlier by Israeli troops in the West Bank outpost of Maoz Esther
Tim Reid, in Washington

Israel and America were locked in one of their most bitter disputes for decades last night after the Israeli Government flatly rejected a direct call from President Obama to halt the construction of Jewish settlements in the West Bank.

The row threatened to set back President Obama’s already bleak prospects for brokering peace in the Middle East. It is likely to dominate his trip to the region next week, when he makes an address to the Muslim and Arab worlds in Cairo on Thursday.

The provocative response to the US Administration’s demand — which had been delivered by the Secretary of State Hillary Clinton on Wednesday — came hours before Mr Obama was due to hold a White House meeting with Mahmoud Abbas, the Palestinian President. He said as he travelled to Washington that the Palestinian demand for freezing settlements would be at the top of his agenda.

Mrs Clinton, using the bluntest public language towards Israel for years, said that when Mr Obama met Binyamin Netanyahu, the Israeli Prime Minister, in Washington a fortnight ago, he had been “very clear” that there should be a stop to all building and expansion of settlements.

“He (Obama) wants to see a stop to settlements — not some settlements, not outposts, not ‘natural growth’ exceptions,” Mrs Clinton declared — a reference to Israel’s insistence that new construction was necessary to accommodate the growth of families already living in existing settlements.

Mrs Clinton, whose husband Bill failed to forge a Middle East peace deal during his presidency, added: “That is our position. That is what we have communicated very clearly.” The aggressive tone towards Israel marked a rare rebuke from Washington towards one of its closest allies. It appeared to reflect a decision by Mr Obama to try to change the behaviour of Mr Netanyahu’s Government.

There have been few instances in recent times of Washington publicly turning the screw on Israel to try to advance the cause of peace. In 1992 the first President Bush demanded a total freeze on settlement housing being built or planned before allowing $10 billion in loan guarantees. Israel announced a freeze and most of the loan guarantees were authorised — but since then settlement-building has continued.

About 500,000 Israelis now live in more than 100 settlements, built on the West Bank and in Arab East Jerusalem among a Palestinian population of 2.5 million after Israel’s occupation of the areas following the Six-Day War in 1967. A key demand of the 2003 “road-map” for a Middle East peace deal is a freezing of Jewish settlement construction. The US and much of the world see them as an obstacle to peace, as they are built on land the Palestinians claim for a future state.

Mark Regev, the Israeli government spokesman, responded to the demand by saying “normal life in those communities must be allowed to continue”. He confirmed that some construction would continue in existing settlements. Mr Netanyahu has signalled his willingness to remove 22 small Jewish outposts but that falls far short of demand by Mr Obama and the Palestinians.

Mr Obama travels to Egypt and Saudi Arabia next week, with the Israeli-Palestine conflict central to his agenda. He, along with Mr Abbas, wants to revive a 2002 Saudi plan to achieve a pan-Arab peace deal. The plan would involve Israel giving up territory seized during the 1967 war in return for a normalisation of relations with the Arab world.

Yet with Mr Netanyahu, Mr Obama and Mr Abbas are contending with a leader disinclined to comply with any of the proposals. He was elected this year on a platform that included opposition to the idea of a Palestinian state.

Mr Obama was also dealing yesterday with a Palestinian leader politically enfeebled at home. He barely controls the West Bank, and Gaza is run by the militant Hamas movement.