JERUSALEM: Israel dismissed on Thursday a blunt US call for a halt to all Jewish settlement building on occupied Palestinian land, the latest sign Washington is hardening its tone towards its close ally.
'Normal life' will be allowed in settlements in the occupied West Bank, government spokesman Mark Regev said, using a euphemism for continuing construction to accommodate population growth.
The fate of settlements 'will be determined in final status negotiations between Israel and the Palestinians and in the interim, normal life must be allowed to continue in those communities,' he said.
His comments marked an effective rebuff to US Secretary of State Hillary Clinton's declaration that President Barack Obama wants a stop to all settlement activity as he pushes for the revival of stalled peace talks.
'He wants to see a stop to settlements. Not some settlements, not outposts, not natural growth exceptions,' Clinton said.
Another senior Israeli official also played down the comments, saying Clinton 'did nothing but again express the differences that appeared during the May 18 meeting in Washington between President Barack Obama and Prime Minister Benjamin Netanyahu.'
It was the clearest example yet of the rift emerging between the administration of Obama, who has vowed to vigorously pursue the peace process as part of a changed approach to the region, and Netanyahu, presiding over a hardline government largely opposed to many concessions.
'The conflict with the Americans is not on its way, it's already here,' Israeli public radio declared.
Clinton's call came ahead of Obama's White House meeting on Thursday with Palestinian president Mahmud Abbas, who has ruled out restarting peace talks with Israel unless it removes all roadblocks and freezes settlement activity.
Netanyahu has said his cabinet would not build any new settlements, but vowed to continue building in existing blocs despite US demands to stop.
'I have no intention to construct new settlements, but it makes no sense to ask us not to answer to the needs of natural growth and to stop all construction,' he told the cabinet on Sunday.
Israeli settlements are among the top obstacles in the stuttering peace process, but are a sacred issue to many on the Israeli right-wing.
And a group of settler rabbis called on Thursday for soldiers and police to disobey orders to dismantle any settlements, including unauthorised outposts that the Israeli government itself considers illegal.
More than 280,000 settlers currently live in settlements dotted throughout the Palestinian territory that Israel captured during the 1967 Six Day War. The international community considers the settlements illegal.
Disagreements over settlement building is just one to have emerged between Israel and Washington since the Obama-Netanyahu meeting, described by some in Israel as the most contentious encounter between the leaders of the two allies in recent history.
One key bone of contention is the principle of a Palestinian state, a bedrock of international peacemaking efforts that Obama supports but Netanyahu has so far refused to publicly endorse.
'Clearly we need to have some reservations about a Palestinian state in a final status agreement,' Netanyahu told ministers on Sunday, using the phrase for the first time since he was sworn in on March 31.
'When we reach an agreement on substance, we will reach agreement on terminology.' Another key issue is Jerusalem. Netanyahu said on his return from Washington that the contested city, whose eastern sector Israel has occupied since 1967 war, would remain under Israeli control.
A State Department spokesman said the fate of the city is 'a final status issue' which Israelis and Palestinians will resolve through negotiations.
Israel calls Jerusalem its 'eternal, undivided capital' while the Palestinians want to make the occupied eastern part the capital of their promised state.
