Israeli officials Tuesday accused the Obama administration of failing to abide by an agreement allowing settlement construction, but a key Israeli negotiator said the deal was never implemented.

The unfinished negotiation between the administrations of Israeli Prime Minister Ariel Sharon and President George W. Bush has contributed to rising tensions between the two allies since the Obama administration took office.

The U.S. insists that Israel freeze settlement construction to improve the prospects for Israeli-Palestinian negotiations. Israeli officials have claimed that a 2003 understanding with the Bush administration permitted "natural growth" within settlements expected to remain under Israeli control even if a Palestinian state is created.

"We never had an agreement with the previous administration. We had an agreement with America," Dan Meridor, an Israeli deputy prime minister, told reporters in Jerusalem on Tuesday. "The agreement we had with America is binding on us and them."

However, Dov Weissglas, who was chief of staff to Mr. Sharon and lead Israeli negotiator at the time, told The Washington Times that the agreement was not implemented because the two sides never specified where within existing settlements new construction would be permitted.

Under the deal, Israel was to stop confiscating Palestinian land for settlement construction, refrain from building new settlements and end tax subsidies for settlement construction and for Israelis who moved to these areas in formerly Arab-controlled territory.

Israel was to be allowed to add housing within a "construction line," but work to demarcate that "construction line" was never completed, Mr. Weissglas said.

"The agreed principle was there would be no construction beyond the construction line, then months later, we, meaning Israel and the United States, realized that it is quite difficult to resolve it, to define where is the construction line in certain instances," Mr. Weissglas said.

U.S.-Israeli teams were to survey the settlements. The Israelis wanted first to survey settlements east of a security barrier Israel has built in the West Bank. These settlements are the most likely to be relinquished by Israel under a peace agreement.

Mr. Weissglas said that the U.S. government wanted to start in the west, with housing likely to remain within Israel under a peace deal.

The dispute has dominated U.S.-Israeli relations in recent months, causing strains not seen since President George H.W. Bush withheld $10 billion in U.S. loan guarantees to the Jewish state.

"Israel never expected to have such pressure put on it publicly" over the settlements, said Stephen P. Cohen, president of the Institute for Middle East Peace and Development and a veteran proponent of Arab-Israeli peace.

State Department spokesman Robert Wood on Tuesday reiterated U.S. policy but said it was "premature to talk about" financial penalties against Israel for continuing to build settlements.

"I think we've been very clear with regard to settlements," Mr. Wood said. "They need to stop, and that includes natural growth. ... The Israelis are well aware of our position."

Mr. Weissglas said that by 2005, with Mr. Sharon preoccupied by Israel's unilateral withdrawal from Gaza, the U.S. and Israel dropped plans to demarcate the construction line in the West Bank.

"There was an agreement," Mr. Weissglas said. "The implementation of the agreement was not concluded because both parties to a certain degree willingly neglected the conclusion of the demarcation process."

The understanding was never drawn up as a formal agreement.

Elliott Abrams, a deputy national security adviser for President George W. Bush who negotiated the deal on the U.S. side, said that was not unusual.

"There were lots of agreements between the U.S. and Israel because there was tremendous trust between the two governments," he said. "We did not operate in a context in which anything that was not written down would disappear; we operated in a context of trust and confidence."

Some critics of Israeli settlement policy acknowledge that the 2003 understanding curbed some activities.

Ori Nir, a spokesman for Americans for Peace Now, said, "While there was an improvement in recent years in terms of a reduction of government approval of new settlements, the scope of West Bank land expropriation and subsidies for settlers, this progress was dwarfed by the enormous boom in new tenders for construction in existing settlements, with little attention paid to the built-up 'footprint' of settlements."

Aaron Miller, a former senior adviser to six secretaries of state on Arab-Israeli peace, said the Obama administration's pressure on Israel over the issue is greater than in nearly two decades.

"The Obama administration has chosen to ignore the debate as to whether the 'Bush 43' understandings on settlements were formal or informal," he said. "They have simply decided to push ahead with their own view of what they want from the Israelis with respect to a settlements freeze."

Mr. Miller said the Obama administration had gone further than the administration of George H.W. Bush "in demanding a total settlement freeze." While the U.S. has not threatened economic penalties, Mr. Miller said, "it is fair to say not since 'Bush 41' and [Secretary of State James] Baker has any administration given settlement activity such a central role in its strategy towards the Arab- Israeli peace process."

Mr. Obama's special envoy for Arab-Israeli peace, George Mitchell, is working behind the scenes on the issue, said two Israeli officials who spoke on the condition that they not be named because of the sensitivity of the dispute.

The officials said Mr. Mitchell is working on a compromise that would require Israel to freeze settlement construction for three to six months. Mr. Mitchell is due in Israel next week.

Hussein Ibish, a senior fellow at the American Task Force on Palestine, said the 2003 understandings did yield "measurable progress" in curbing some settlement activity.

However, Mr. Ibish said that the understandings were the product of "conflict management," which he contrasted with Mr. Obama's desire to resolve the dispute.

"The Obama administration seems determined to move beyond conflict management towards conflict resolution with an eye to the actual creation of the Palestinian state," he said. "That means that any significant settlement activity is a major obstacle to U.S. policy goals. Even if the people involved in the 2003 to 2005 conversations feel there was an agreement, it no longer has any relevance to the foreign policy approach of the current administration and is therefore moot."