Israel's ultranationalist foreign minister said Monday that he voluntarily removed himself from crucial talks with the United States because he lives in a West Bank settlement, denying speculation that he's being sidelined by an image-conscious government troubled by growing friction with the Obama administration.

The talks are meant to bridge the gap between Washington, which demands a total West Bank settlement freeze, and Israel, which wants some construction to continue.

Avigdor Lieberman told reporters he stepped aside because his status as a settler could be perceived as a "clear conflict of interest." Defense Minister Ehud Barak of the dovish Labor Party has been dispatched to the talks instead.

"I wouldn't want to be accused afterward of purposely derailing important political negotiations" and jeopardizing relations with the United States, Lieberman said.

"I am involved in the peace process but I think in this specific case at this stage it is much much better that Barak take responsibility for these talks," he told reporters.

Barak was meeting in London on Monday with U.S. Mideast envoy George Mitchell. He and Israeli Prime Minister Benjamin Netanyahu say construction must go on to accommodate growing settler families in the West Bank — land the Palestinians seek as part of a future state. Nearly 500,000 Israelis live in the West Bank and east Jerusalem, areas captured by Israel in the 1967 Mideast war and claimed by the Palestinians.

The European Commission, in an unusually blunt statement, said before the meeting that Israel's settlement policy in the West Bank stifles the Palestinian economy, increasing Palestinian dependence on foreign aid and ultimately forcing European taxpayers to bear much of the cost.

The Israeli Foreign Ministry said the EU ambassador to Israel was called in for explanations, a form of protest. The Israeli statement said the meeting between Barak and Mitchell would take place Tuesday.

Lieberman took office three months ago on a decidedly undiplomatic agenda, criticizing Mideast peace efforts and calling for a national loyalty oath that drew charges of anti-Arab racism.

His stances have drawn heavy international criticism. French President Nicolas Sarkozy last month advised Netanyahu to "get rid of that man," according to Israeli officials. Netanyahu, addressing a group of European Union ambassadors last week, expressed "full confidence" in his country's chief diplomat.

But in recent weeks, Lieberman appears to have been pushed aside on foreign policy matters and his ambitious legislative agenda has fizzled.

Even though Israel's foreign policy traditionally is set by its prime minister, "it is interesting to note just how invisible now Lieberman is in the current main tracks of Israeli diplomacy," said Jonathan Spyer, an expert on international affairs at the Herzliya Interdisciplinary Center near Tel Aviv.

Given the pressure on Israel to ease its hawkish stance, "it suits the government's purposes to have him play a very low profile," Spyer said.

Lieberman hasn't been completely hidden. He has visited several European capitals and on Monday met in Jerusalem with Germany's foreign minister. A natibe of Soviet Modlova and a Russian-speaker, Lieberman has become Israel's point man on Russia.

He also has been to Washington, where the climate turned frosty when he bluntly said Israel would keep building in the West Bank.

In pressing Israel's case for settlement expansion, Netanyahu has turned to Barak, the most moderate face of a government dominated by hardliners. Barak's Labor Party has been a longtime advocate of Palestinian statehood, a position only recently endorsed by Netanyahu.

"Lieberman, to put it mildly, could not be part of that," Spyer said.

Lieberman also has been frozen out of Israel's dealings with Egypt and Jordan, the only Arab countries with peace treaties with Israel. Instead, President Shimon Peres, a Nobel peace laureate, has been representing Israel's interests with the Arabs. Both Egypt and Jordan have given the cold shoulder to Lieberman, who declared last year that Egyptian President Hosni Mubarak could "go to hell" for not visiting Israel.

On the parliamentary front, too, Lieberman suffered a setback when lawmakers scotched his Yisrael Beiteinu Party's proposal to require citizens to sign a loyalty oath.

Allegations of bribe-taking and money-laundering continue to dog him as well. Police who have been working on the case for more than a decade have questioned him several times since he became foreign minister.