Israeli public television announced that the government had taken the decision to reduce the number of homes planned for construction in the illegal Israeli settlement of Maale Adumim.
Israel tried to reassure the United States on Thursday it had no major expansion plan for the biggest illegal Jewish settlement in the West Bank after officials said ground-breaking for new construction had already begun.
Israeli building around Maale Adumim would flout a US-backed peace roadmap and could also cut off Palestinians from Jerusalem, which they seek to share as the capital of a future independent state.
Under the roadmap plan, which Israel accepted, the Jewish state is required to freeze all illegal settlement activity on occupied Palestinian lands. About 100 settlements have
sprung up since Sharon took office in 2000.
But Prime Minister Ariel Sharon told visiting White House
envoy Elliot Abrams there was no new plan to link Maale Adumim to Jerusalem, only an old project to build hotels and tourist sites in the area, a Sharon aide told Reuters.
Despite Sharon's assurances, Israeli sources said that diggers working on the stony hillside linking the illegal settlement to Jerusalem appeared to be preparing the route of a new road on Thursday.
According to the Associated Press, Israeli bulldozers on Thursday cleared a rough road across a West Bank hill that Israel hopes will become a permanent part of the Jewish state, despite heated objections from both the Palestinian leadership and the Bush administration.
Israeli Public Radio reported earlier Thursday that detailed planning work, including the tendering process, for the new neighbourhood between Maale Adumin and Jerusalem was expected to be completed in the next six months after which construction on the 1500-hectare (3700-acre) development may begin.
Israel had initially planned 600
new houses at Maale Adumim
Although the Israeli Government has decided to cut about a quarter of the 600 new homes it had planned for the largest of its illegal West Bank settlements, the mayor of the settlement, Benny Kachriel told Israeli television he disapproved.
"The construction of this lot of 600 houses was already approved during the era of Ehud Barak's Labour government," he said.
On Tuesday, the EU and Egypt strongly criticised Israeli plans for the illegal West Bank settlement.
In a statement, the Dutch EU presidency said such plans ran counter to both "the letter and the spirit of the roadmap for peace that Israel has accepted".
Egypt's Foreign Ministry said the expansion is "a blatant violation of Israel's commitments under its agreements, UN Security Council resolutions and the roadmap, which clearly calls for an end to settlement activities".