In an interview with Israeli public radio broadcast on Sunday, she also stressed the US was committed to the internationally drafted road map peace plan, which calls for the freezing of all settlement activity. 

"The American view is that while we will not prejudice the outcome of the final status negotiations ... the existing major Israeli population centres will have to be taken into account in any final negotiation," she said.

"No one should say that there is no agreement between our two governments. There is. I hope I've been able to make it clear," she added. 

"American policy remains unchanged in accordance with the road map, but I just wanted to make certain that everyone understood what the 14 April agreement is," Rice said. 

Bush's letter

In the 14 April letter to Israeli Prime Minister Ariel Sharon, US President George Bush said the final borders of a promised Palestinian state must take into account demographic realities on the ground. 

After talks between the two leaders on the same day, Bush said Palestinian refugees should not be allowed to return to lands lost to Israel in 1948-9 and that Israel should be able to keep some Arab land captured in the 1967 war. 

Rice's comments were likely to further fuel debate and Palestinian anger over the US position on West Bank settlements, regarded as illegal by the international community. 

On Friday, US ambassador to Israel Dan Kurtzer also said Tel Aviv would be able to retain sovereignty over large Jewish settlement blocs in the West Bank, contradicting reports that there had been a misunderstanding with Washington on the issue. 

Last week, Israel announced it would push ahead with the expansion of the largest West Bank settlement - Maale Adumim, east of Jerusalem - through the construction of more than 3500 new homes.