This sprawling, well-manicured Israeli settlement -- with its rows of red-tile roofs, palm trees and air-conditioned shopping mall -- could almost pass for Orange County. Except the guards in this gated community sometimes pack automatic weapons.

Settlements such as the city-sized Maale Adumim, about four miles east of Jerusalem in the West Bank, are viewed by much of the world as illegal because they are built on land seized by Israel during the 1967 Middle East War. Many Israelis see Maale Adumim as part of their country.

Now the long-simmering dispute over this and other fast-growing settlements has become a major obstacle to restarting peace talks. Palestinians have refused to resume talks unless settlement growth is frozen, including so-called natural growth of existing settlements as families grow. Israelis have refused, despite pressure from the Obama administration, saying a complete freeze would unfairly disrupt the "normal life" of settlers. The issue has sparked the most public rift between the U.S. and Israel in years.

"Why is President Obama interfering with our lives, telling us how many children we can have and whether we can get married?" asked Benny Kashriel, longtime mayor of Maale Adumim.

Many of Israel's approximately 220 settlements and outposts have a reputation for being populated by ideologues and religious zealots who want to stake an Israeli land claim. However, much of the recent growth is occurring in a handful of large settlements, including Maale Adumim, which is home to 37,000 people and has become a de facto Jerusalem suburb. Settlers here are more likely to be secular families in search of affordable housing. Apartments in Maale Adumim cost one-third those in Jerusalem.

With its own municipal infrastructure, an industrial park and school system, Maale Adumim is larger in size than Manhattan. But even as its population has doubled over the last decade, the community has developed only one-fifth of its available land.

Talk about a possible freeze has many here worried.

"You can't freeze a city," Kashriel said. "If you freeze, you go backwards. Every month we are not building and people are not coming, it affects the economic situation of the city. . . . It's punishing."

A freeze, officials say, would threaten the opening of four new synagogues and seven sorely needed schools. Class sizes are already near the legal limit of 40 students per room.

An additional 400 units of housing in various stages of construction might also be shut down, leaving homeowners -- many of whom have already taken out mortgages up to $300,000 -- with monthly payments and no place to live.

"Even now, there is no new stock of housing," said Israel Laufer, a sales representative at Shafir, a Maale Adumim home builder. "In a year, it will all be gone and there will be no place for young people to live."

Settlers get little sympathy from the mayor of Azariyah, the adjacent Palestinian village that finds itself sandwiched between Maale Adumim and a 25-foot concrete wall, part of a barrier Israel is building along and in some parts through the West Bank.

With about 25,000 residents, Azariyah, also known as Bethany, where the biblical Lazarus is said to have risen from the dead, occupies about one-fourth of the space it had before 1967, town leaders say. Maale Adumim settlers live on their former pastures, and about 300 homes were torn down by Israeli forces to create a buffer zone, officials said.

"They keep opening their mouths to swallow more of our land," said Mayor Issam Faroun. "What about our 'natural growth'? We're surrounded and they are leaving nothing for us."

He said that as Maale Adumim frets about the fate of its landscaped grounds or swimming pools, Azariyah residents receive water only once a week. The town gateway has turned into a junkyard of trash, scrap metal and old appliances. Schools have 45 students per class and unemployment is 50%, in part because the barrier prevents workers from reaching Jerusalem.

With no room to expand horizontally, families are adding second and third stories to their homes as children grow up and marry. Bassem abu Roomy, 31, still lives in his parents' house, sharing two rooms with his pregnant wife and two children. His younger brothers are not so lucky.

"We can't add any more stories because the foundation of the house can't support it," he said. "So they can't get married."

A decade ago, the two communities lived somewhat harmoniously. Israelis shopped in Azariyah and Palestinians worked on housing projects in the settlement. But during the last Palestinian uprising, in 2000, two settlers were shot in the village and relations have been strained since.

The competing needs of these two communities have become part of the international debate.

The Israelis complain that the focus on settlements is out of proportion and the issue should be resolved during peace talks, not before. They have pledged not to establish any new settlements and note that the United States for years tolerated "natural growth" of settlements, even though the "road map" peace plan presented by the U.S. in 2003 prohibited it.

Israeli officials say Obama is pressing for a freeze to enhance his credibility in the Arab world, but they say they can't legally restrict growth in places such as Maale Adumim, which many expect will remain part of Israel under any deal.

U.S. and Israeli officials are expected to resume negotiations on the issue today.

The standoff has been an unwelcome distraction for Prime Minister Benjamin Netanyahu's new government. Though polls show Israelis are split on the issue of a freeze, he took office as part of a coalition that vowed to keep building. Settlers, who now number nearly 500,000 in the West Bank and East Jerusalem, are pressing him to keep his word.

Palestinians say there is no point to talks as long as the settlements continue to grow and Israelis further entrench themselves on disputed land.

"Natural growth in an illegal settlement doesn't make it legal," said Palestinian lawmaker Mustafa Barghouti. "Any continuation of settlement growth is going to end the two-state solution."

Some experts agree that the Israeli government has been using the "natural growth" argument to expand settlements. The communities' populations grew by about 7% last year, compared with Israel's average growth rate of about 1.8%, according to Mossi Raz, an Israeli activist opposed to settlement growth.

Much of that growth is coming from people moving into the settlements, rather than from new births or grown children starting their own families. In Maale Adumim, about half the growth in recent years has come from migration, according to Peace Now, an Israeli advocacy group that the opposes settlements.

"So most of the growth is not so natural," Raz said, adding that Israeli home buyers should look elsewhere.

"Every person who goes there today," he said, "is going to be our problem tomorrow."