Cameras were rolling, capturing the defiant Israeli mood over President Obama's stand on Jewish settlements.

With three other Cabinet officials at his side, Interior Minister Eli Yishai toured a Jewish outpost in the West Bank on Monday and declared: "Israel must do what it believes is right, and the Americans will understand that there was no choice but to continue building" on Palestinian-claimed land.

That evening, as former Arkansas Gov. Mike Huckabee attended a dinner in support of a Jewish housing project in predominantly Arab East Jerusalem, an Israeli demonstrator unfurled a banner portraying Obama in a checkered Palestinian kaffiyeh. "Barack Hussein Obama -- Anti Semite Jew-Hater," it read.

Israeli Prime Minister Benjamin Netanyahu has exploited such sentiment to depict Washington's opposition to settlement growth as unreasonable. But Israeli officials say he is also seeking a compromise that would limit the growth and facilitate Obama's goal of restarting Israeli-Palestinian peace talks.

Several officials said Tuesday that Netanyahu, Defense Minister Ehud Barak and Housing Minister Ariel Atias had quietly agreed to suspend all government tenders to build new Jewish housing in the West Bank and East Jerusalem at least until the start of next year.

The government and its critics acknowledge that there has been no green light for construction bids since November and that Netanyahu, after taking office on March 31, allowed the de facto suspension to continue.

One official said the recent decision, which was not announced, makes the suspension explicit in advance of a new round of talks set for next week between Netanyahu and U.S. envoy George J. Mitchell.

"The fact is, we are in a holding pattern," Atias told Israel Radio. "This is an attempt, I believe, to reach an understanding with the American administration, to reach a comprehensive peace agreement."

Israel's move falls short of the total freeze the Obama administration initially sought. At the same time, it has provoked an outcry within Netanyahu's conservative-led government, highlighting the difficulty of ending Israel's most pointed disagreement in years with the United States.

Obama said Tuesday that he was nonetheless encouraged.

"There has been movement in the right direction," he told reporters at the White House after talks with Egyptian President Hosni Mubarak. Israel "has taken discussions with us very seriously."

Obama said he expected Palestinians to improve the climate for renewed negotiations, such as by ending incitement of violence against the Jewish state. The latest round of U.S.-brokered peace talks collapsed late last year.

In resisting a settlement freeze, Netanyahu and his aides have complained that the Obama administration is putting undue emphasis on such a step and not enough pressure on the Palestinians, who have refused to renew the talks without one.

Huckabee and other visiting Republicans have sharpened the divide, accusing the Obama administration of undermining Israel.

After the State Department objected last month to a planned Jewish housing project in East Jerusalem, Netanyahu declared, "We cannot accept the idea that Jews will not have the right to live and purchase [homes] anywhere in Jerusalem." His popularity at home rose among Jews throughout Israel as well as the estimated 300,000 who live in West Bank settlements that most of the world views as illegal.

At the same time, Netanyahu and his aides have been quietly negotiating terms of a settlement freeze with U.S. representatives led by Mitchell.

In doing so, the Israeli leader is reattempting the failed balancing act of his previous stint as prime minister, in the late 1990s. After positioning himself as a hard-liner then, he yielded to U.S. pressure and gave up partial control of the West Bank city of Hebron to the Palestinians. Right-wing allies defected, bringing down his government.

"We're seeing the same gap between rhetoric and reality today," said Hagit Ofran, an activist for Peace Now, an Israeli organization that monitors and opposes settlements. "The government insists that Israel must build here and there. In fact, there's a limited freeze. It's not enough, but it's a good sign."

A senior Israeli official said Netanyahu was moving toward a compromise with Mitchell that, during the freeze on new projects, would allow completion of existing work in large settlements that Israel expects to keep in a final peace treaty. The official said he expected agreement on terms of a freeze by October.

"The idea is to find a modus vivendi to alleviate any concerns the Palestinians have but also to allow a normal life for the people" in the settlements, he said. "I think we can find a way that is credible and workable."

Palestinian negotiator Saeb Erekat dismissed the freeze on tenders as a "play on words" that will not stop construction of 2,500 Jewish homes he said is underway in the West Bank.

Peace Now put the number of settlement homes under construction at 1,000. It said private construction by settler groups accounted for 60% of building in the West Bank and would not be halted by a freeze of government tenders.

Even so, right-wing reaction to the freeze was furious and pointed to disarray in the government.

"Once again we elected Netanyahu and got the old Bibi," said a statement by the Binyamin Settlers Committee, using the prime minister's nickname. "The one who talks passionately about the rock of our resistance but capitulates in the face of American pressure."

"Israel is not a satellite of the United States," declared Daniel Hershkowitz, the minister of science and technology. Deputy Foreign Minister Danny Ayalon objected to the freeze, noting its lack of full Cabinet approval.

Asked about dissenting voices in the government, Atias, the housing minister, told Israel Radio: "Who am I to criticize other ministers? Everyone has his own view."

He added: "The prime minister is acting wisely about one thing. He's not trying to clash with the Americans."