Clinton, however, rejected this, saying that there were no records of such an agreement.

"As President Obama, Senator Mitchell and I have said, we want to see a stop to the settlements," she said.

About 500,000 Jews live in more than 200 settlements and outposts set up across the occupied West Bank and East Jerusalem, territories which were captured from Jordan in 1967.

'Critical concerns'

Clinton said George Mitchell, the US administration's Middle East envoy, would have more discussions on "critical concerns" during forthcoming talks with Israel.

In depth


 Video: Al Jazeera profiles Israel's foreign minister
 Q&A: Jewish settlements
 
Analysis: Limiting a Palestinian state
 Riz Khan: The battle over Israeli settlements
 Riz Khan: The future of US-Israeli relations
 Inside Story: Roads and obstacles to peace
 Inside Story: US and Israel poles apart

Binyamin Netanyahu, the Israeli prime minister, is set to meet Mitchell in Europe next week to try to hammer out an agreement, Israeli officials said.

Media reports said on Wednesday that the US could allow some building within existing settlements, while demanding a ban on new tenders as part of an overall settlement freeze.

Saeb Erekat, the chief Palestinian negotiator, told Al Jazeera he was pleased that Clinton has reiterated the US demand on settlements, but was worried by reports that a deal could be agreed between the US and Israel.

"Madam Clinton was very clear and she spoke of obligations. Stopping settlement activity including natural growth and the two-state solution are not conditions. These are Israeli obligations."

"What worries me are reports about deals on settlements. Lieberman speaks about natural growth... but 40 per cent of the built up areas of settlements are vacant. This is about land grab. This is about dictating and not negotiating."

Erekat said he believed that Lieberman and Netanhayu would tell the US that home-building within settlements that had already begun could not be stopped.

"The Israelis are speaking about natural growth for illegal settlements but there is no such thing as natural growth for Palestinians. They are demolishing people's homes in East Jerusalem, throwing people out of there and this should stop."

Lieberman's visit, during which he will also meet senior US politicians, including Democratic senators John Kerry and Joe Lieberman, follows remarks by Mitchell  in which he said he hoped that full peace talks between the Palestinians and Israelis could begin within weeks.

Netanyahu speech

The visit also follows a speech by Netanyahu on Sunday in which he gave some ground over the issue of a Palestinian state following US pressure.

Netanyahu, however, laid down several conditions, including that it have no military and that it recognised Israel as a Jewish state.

He also said that while Israel had no intention of building new settlements or of expropriating additional land for existing settlements there was a "need" to permit "natural growth" of settlements.

The speech was cautiously welcomed by the US, with Barack Obama, the US president, who said it was a "positive movement" that paved the way for "serious talks," although the he reiterated a US demand for a halt to settlements.