The U.S. is pressuring Israel to meet a long-standing obligation to freeze all West Bank settlement construction ahead of a high-profile Mideast conference, rejecting Israel's stance that it be allowed to continue building in existing communities, Israeli officials said Sunday.

The officials said that Prime Minister Ehud Olmert's Cabinet would discuss the settlement issue on Monday, though it remained unclear whether the ministers would endorse any changes in policy.

The U.S. has been urging Israel to make a series of gestures to the Palestinians ahead of the Mideast peace conference, which is expected to take place next week in Annapolis, Md.

Key Arab governments will announce Friday if they will attend the conference, said an Arab League official Sunday. Diplomats familiar with the governments' deliberations hinted that despite reservations about the conference, they would probably attend.

The nations' ministers, however, will insist that a final statement from the Annapolis meeting include an Israeli agreement to a Saudi-sponsored land-for-peace deal proposed by Arabs in 2002, said another diplomat, speaking on condition of anonymity because of the sensitivity of the discussions.

The American proposals have included an Israeli freeze on West Bank settlement construction and a large-scale release of Palestinian prisoners. Israel holds roughly 9,000 Palestinian prisoners.

At the upcoming summit, Israel and the Palestinians hope to announce a formal resumption of peace talks, which broke down in violence seven years ago. However, preparations have run into trouble, with the sides unable to agree on a joint blueprint for peace they had hoped to present to the conference.

Olmert and Palestinian President Mahmoud Abbas were scheduled to meet Monday for the latest in a series of preparatory talks.

Arab countries that have no diplomatic ties with Israel such as Saudi Arabia are concerned the U.S.-sponsored conference may reflect attempts to initiate contacts with Israel before the Jewish state is committed to the Arab peace plan.

The Palestinians have indicated their willingness to attend the summit regardless of the Arab League's position.

Olmert tried to play down any problems Sunday, telling the visiting French foreign minister, Bernard Kouchner, that "Annapolis can't be a failure, because the very fact that it's taking place makes it a success."

Olmert later told supporters that the real negotiations would take place after Annapolis. He said there are risks and obstacles, but they must be overcome because "if we don't have the courage to deal with that now, we will pay a heavy price."

Ahead of the conference, Israel and the Palestinians have committed to carrying out their initial obligations under the long-dormant U.S.-backed "road map" peace plan. The road map requires Israel to stop all settlement construction and the Palestinians to disarm militants.

The Palestinians say they have begun cracking down on gunmen in the West Bank and want Israel to begin carrying out its obligations. Israel has maintained it should be allowed to build housing in existing settlements to account for "natural growth" of the local population.

According to the U.N., 450,000 Israelis live in the West Bank and east Jerusalem, territories Israel captured in the 1967 Mideast war. Israel annexed east Jerusalem after the war, but the move is not internationally recognized.

The Palestinians claim all of the West Bank as part of a future independent state, with east Jerusalem as its capital. Israel hopes to keep many of the settlements under a final peace deal.

Aides close to Olmert traveled to Washington last week and said the Americans expressed their displeasure with the Israeli position on natural growth. The Americans also urged Israel to go further than a proposed release of 450 Palestinian prisoners, the officials said, speaking on condition of anonymity because the talks were confidential.

The Palestinians want Israel to free 2,000 prisoners, saying the gesture would go a long way toward shoring up support for moderate Palestinian President Mahmoud Abbas in his struggle against Hamas. The Islamic militant group controls the Gaza Strip.

Israeli officials said the issues of settlements and prisoners were expected to be debated at Monday's Cabinet meeting. But it was unclear whether the ministers would approve any changes. Several hard-line members of the Cabinet have threatened to destabilize the government if Olmert goes too far.

"Tomorrow there is going to be a Cabinet meeting and we will discuss all the issues, so excuse me for not referring to the exact number of prisoners that will be released," Foreign Minister Tzipi Livni, Israel's chief negotiator with the Palestinians, told a news conference.

In a boost for peace efforts, international Mideast envoy Tony Blair said Israel and the Palestinians will announce a number of economic projects Monday that could create tens of thousands of jobs for Palestinians.

The projects are "designed to give some sense things could change on the ground," Blair said in a joint news conference in the West Bank with Palestinian Prime Minister Salam Fayyad and Kouchner.