The newspaper quotes Israeli officials as saying that they have clear guidance from Bush administration officials to continue building settlements under certain criteria.
Dov Weisglass, Sharon's chief of staff, said Condoleezza Rice, the US secretary of state, reaffirmed the understanding in a secret deal reached in 2005 before Israel withdrew it settlements from the Gaza Strip, the newspaper reported.
McCormack said both sides in the conflict were aware of the US position on their responsibilities.
"And we've also made clear over and over again that any lines that are drawn by both sides need to be negotiated by both sides and any deviation from the ... known lines are going to have to be negotiated," he said.
During a visit to Washington this week, Mahmoud Abbas, the Palestinian president, told Rice that continued Israeli settlements in the West Bank "are still the main obstacle" to the peace process.
The West Bank has been under military occupation by Israel since 1967 and at least 400,000 Israelis have been settled in the territory, including East Jerusalem.
The settlements are illegal under international law, although Israel disputes this.