Before heading back to Israel from New York following his meeting with US Mideast envoy George Mitchell, Defense Minister Ehud Barak said Wednesday morning that Israel was close to an understanding with the US on settlements, which he stressed were part of a regional comprehensive peace effort.

"We focused mainly on the need for a comprehensive regional agreement," he told Israel Radio. "That includes other Arab states which have something to give to Israel, not just to take"

He stressed that the comprehensive effort would also include strengthening Palestinian institutions, and that the the settlement issue, while being "very important," had to be "taken into proportion."

Regarding natural settlement growth, Barak stressed that no one in the US actually believed that "we can stop pregnancies or not build kindergartens where required."

The defense minister said that although the US had called for a cessation of all settlement activity, Prime Minister Binyamin Netanyahu was not that far from the American position, noting that the prime minister had already stated that "no new settlements will be built, there will be no more settlement projects or expropriation of new land."

He emphasized that settlement construction approved recently, for example in Modi'in Illit, was for haredi families who cannot afford homes inside the Green Line.

Barak also spoke of the remarks attributed to French President Nicolas Sarkozy earlier this week in which he reportedly called on Netanyahu to oust Foreign Minister Avigdor Lieberman and replace him with Kadima head Tzipi Livni.

"The makeup of the Israel political arena is an issue for us to discuss internally," he said. "There is no way someone outside can try to explain to us what to do."

He said there was "absolutely no reason" to think Lieberman was causing Israel damage in the international area, adding that on all state visits he had expressed himself "responsively and with good judgment."

However, Barak said he had taken something positive from the report: Sarkozy's call on Kadima to join a unity government.

A statement issued moments before the defense minister's interview with Israel Radio said that Barak and Mitchell "discussed the full range of issues related to Middle East peace and security and the contributions Israelis, Palestinians, their neighbors and the international community should make to this effort."

The statement went on to say that their discussions covered a wide range of measures needed to create a climate conducive to peace.

"These included measures on security and incitement by the Palestinians; steps by Arab states toward normalization with Israel; and, from Israel, actions on access and movement in the West Bank and on settlement activity," it said. "The discussions were constructive and will continue soon."