'Reducing construction'

Netanyahu did not address the settlement issue in his remarks broadcast from the Israeli cabinet meeting, preferring to use language that might appeal to both the left and right wings of his government.

"The  type of language we are hearing at the moment is 'reducing the scale' of construction in the settlements, which does seem to be a kind of halfway house which may end up not pleasing anyone," Rowland reported.

"Netanyahu is really facing irreconcilable demands on the one hand for a setlement freeze, a demand pushed by the US and the EU, but on the other hand equally strong opposition to any freeze from within the cabinet."

Building of more settler homes is expected to begin in the days ahead [AFP]
The Israeli and US positions are also unlikely to satisfy Palestinian demands.

Speaking while on a visit to Cairo, the Egyptian capital, Khaled Meshaal, the political chief of the Hamas faction, said: "In terms of normalisation and the freezing of settlements, we warn against any hasty decision on the part of the Arabs in terms of what Obama and Israel are proposing.

"We will take Obama's announcement at the UN General Assembly at the end of this month seriously, but we will not accept the Palestinian cause being reduced to this one issue of a settlement freeze in return for Arab normalisation with Israel.

"The real issue is that of an Israeli occupation of Palestinian land which must end.

"The Palestinians must have the right to self-determination."

Decision imminent

But Yisrael Katz, the transport minister, told Israel Radio: "The prime minister will decide in the coming days on the building of hundreds of additional housing units in order to solve existing problems in various settlements."

Israeli officials announced the new construction on Friday but they also hinted they might halt some building in the occupied West Bank to try to appease the Arab world.

Avishay Braverman, minister of minorities from the Labor party, said: "Most of the settlers will eventually stay in land that will be absorbed in Israel, but many others will have to be dismantled. I think there will be a freezing."

About 300,000 Israelis live in the West Bank and another 200,000 in Arab East Jerusalem, territory captured in a 1967 war.

Palestinians numbering about 2.5 million live in the West Bank and aspire to establish a state there and in the Gaza Strip.