ISRAEL and the US now appear to be on a collision course after the announcement yesterday by Israel's Prime Minister Benjamin Netanyahu that Israel would continue expanding its existing settlements.

Mr Netanyahu told the first cabinet meeting since his meeting with US President Barack Obama that Israel would not begin new settlements on the West Bank but that it would allow "natural growth" in existing settlements.

This was clearly at odds with Mr Obama's request last week that Israel should stop settlement activity, a request reinforced the following day by US Secretary of State Hillary Clinton, who specifically said there should be an end to "natural growth" after Israeli officials had been using the term following the meeting with Mr Obama.

Mr Netanyahu said to his colleagues at yesterday's cabinet meeting: "The demand for a total stop to building is not something that can be justified and I don't think that anyone here at this table accepts it.

"We won't establish new settlements, but there's no logic in not providing an answer to natural growth."

A second disagreement between the two countries has opened up over the status of Jerusalem; while Mr Netanyahu told a ceremony last Thursday that "Jerusalem was always ours and will always be ours", the US State Department insisted yesterday that Jerusalem was a matter for negotiation.

"Jerusalem is a final status issue," State Department spokesman Ian Kelly said.

"Israel and the Palestinians have agreed to resolve its status during negotiations."

A spokesman for Mr Netanyahu, Mark Regev, told The Australian yesterday that it was wrong to see the settlement issue as "the be-all and end-all of the peace process".

"Only four years ago, some 20 settlements in the Gaza Strip were closed. The settlers who didn't want to leave voluntarily were forcibly removed," he said.
"Since then we had more violence and terrorism from the Gaza."

Mr Regev said existing settlements would ultimately be discussed during peace talks between Israelis and Palestinians "but until then normal life in those communities will continue".

Speaking at the same cabinet meeting yesterday, Israel's Foreign Minister Avigdor Lieberman said Israel would not agree to return to pre-1967 borders as is often called for.

"A return to the borders of 1967 today, as we are being pressured to do, would not end the conflict, would not guarantee peace or security," Mr Lieberman said. "It would simply move the conflict to within (the) 67 borders."

While Israel is not agreeing to Mr Obama's request to halt all settlement activity, it is clearly keen to be seen to be offering some concession - the cabinet yesterday agreed that illegal outposts on the West Bank should be dismantled.

Mr Regev said: "Israel is a country where there is a rule of law. If outposts are built outside the framework of law they will be coming down."

On the issue of Jerusalem, Mr Regev said Israel made a distinction between Jerusalem and the West Bank. "Jerusalem is our capital," he said. "No Israeli government has ever agreed to limit sovereignty in Jerusalem."

When Mr Regev was asked whether Mr Netanyahu's announcement about settlements was contrary to what Mr Obama had asked for, he said: "There's a process now of dialogue with the US on these issues."