Israel will not freeze settlement construction for natural growth, despite intense pressure from the Obama administration to do so, The Jerusalem Post has learned.

While Prime Minister Binyamin Netanyahu has indicated that he will remove illegal settlement outposts, he is determined, the Post has learned, to continue building for natural growth in settlements beyond the security barrier.

In Netanyahu's view, it is further understood that there is no reason housing units cannot be built inside the major settlement blocs for people who want to move there, as well as for natural growth.

In light of unequivocal comments made over the last week by US Secretary of State Hillary Clinton calling for an end to all settlement construction, including for natural growth, as well as US and Israeli officials' failure to reach an agreement on this issue in London last week, there is a great deal of frustration over the matter in the Prime Minister's Office.

However, there is also a sense that Netanyahu simply cannot agree to the US demands.

Despite the failure of the London talks to resolve the issue, dialogue on the matter is continuing, with Defense Minister Ehud Barak expected to discuss the matter Monday in New York with US Middle East envoy George Mitchell, and then later in the week with US Vice President Joe Biden and National Security Adviser James Jones.

Representing the left flank of the Netanyahu government, Barak has made it clear that he, too, feels it is illogical and impossible to completely stop all construction in the settlements.

Israel has made clear to the Americans that while it will build for natural growth, it will do so in a way that will not impinge on the Palestinians - meaning that the construction will be within the designated boundaries of the settlements; there will be no expropriation of new land and no construction of any new settlements.

Considering Clinton's comments that there should be absolutely no new construction anywhere in the settlements, there is heightened concern in Jerusalem that her words presage the beginning of a rollback of understandings on settlement construction that were reached with the Bush administration, and that were anchored in then-president George W. Bush's 2004 letter to former prime minister Ariel Sharon.

Elliott Abrams, the former deputy national security adviser who was intimately involved in the issue, acknowledged these understandings in a Washington Post article in April, in which he said, "For the past five years, Israel's government has largely adhered to guidelines that were discussed with the United States but never formally adopted: that there would be no new settlements, no financial incentives for Israelis to move to settlements and no new construction except in already built-up areas. The clear purpose of the guidelines? To allow for settlement growth in ways that minimized the impact on Palestinians."

The current sense in Jerusalem is that a demand for Israel to stop all construction runs contrary to these guidelines, leading to the argument that if the US does not honor its previous understandings with Israel, then it has little right to demand that Israel live up to commitments it made in the past, such as taking down settlement outposts.

It is not yet clear in Jerusalem whether the US position on this issue is an "excuse" for the US to distance itself from Israel in the hopes of making inroads in the Arab world, or whether this is indeed a cardinal issue for administration officials.

There are those saying that the US is staking out a tough position now prior to Obama's anxiously awaited speech in Cairo on Thursday, but that the US will then "climb down from the tree" and come to a tacit agreement with Israel on the issue.

But there are others who believe that settlement construction is indeed a major irritant for the Obama administration, and that since the administration senses there is little support in Congress for construction in any of the settlements, whether in Ma'aleh Adumim or Yitzhar, the Obama administration will not back down on the issue.

The unmistakable message being conveyed to Jerusalem by some key supporters in the US is that at this time, there is not going to be a lot of understanding in the Democratic-led Congress for any building in the settlements.