The Israeli government has quietly agreed to grant subsidies to build more than 500 new homes in the West Bank, backtracking from a promise earlier this year to deny these incentives to the settlements, The Associated Press has learned.

The planned construction, at a time when Prime Minister Benjamin Netanyahu is trying to shore up support among settlers, has enraged the Palestinians and could cloud a visit starting Sunday by U.S. Secretary of State Hillary Rodham Clinton as she tries to re-energize moribund Mideast peace efforts.

The housing units are benefiting from the government's designation of the settlements as "national priority" areas — a status normally reserved for low-income cities and towns where the government wants to encourage development and lure people to live.

In January, the Israeli Cabinet identified more than 550 communities, including 70 West Bank settlements, as national priority areas. The list drew immediate protests from the Palestinians, who view the West Bank as the core of a future state. The U.S. demanded an explanation of the settlements' inclusion.

Facing international pressure, Israeli leaders quietly held a second vote in a meeting conducted by telephone to exclude the settlements from the measure. Shortly after, Netanyahu told a news conference with visiting U.N. Secretary-General Ban Ki-moon that the initial Cabinet decision was a mistake.

Government spokesman Mark Regev at the time insisted the new vote meant that the subsidy program "does not apply to communities in the West Bank." Still, the Cabinet left a loophole, saying settlements could receive benefits "contingent on a decision by political leaders."

According to Israel's Housing Ministry, however, the country's political leaders have already approved subsidies for one small project of 24 homes in the settlement of Efrat, just south of Jerusalem. And nearly 500 other homes in Efrat and two other settlements, Beitar Illit and Ariel, are now in the pipeline to receive the incentives, which include a discount of up to $27,000 for infrastructure development costs.

Ministry spokesman Ariel Rosenberg said it is not clear how many of these homes will be built because the construction bids for the 500 homes have not closed. He also noted that subsidies are also available for projects in hundreds of other communities inside Israel proper.

Asked about the apparent government flip-flop, Regev said, "There are no special incentives whatsoever to encourage people to live in the West Bank. The same conditions apply to 600 communities throughout the country."

But neither the Palestinians nor the international community see things that way.

Israeli settlements in the West Bank and east Jerusalem are at the heart of a 3-year-old deadlock in Mideast peace efforts. The Palestinians claim both areas, captured by Israel in 1967, for a future state. But with more than 500,000 Jewish settlers now living in these areas, the Palestinians say their dream of an independent state is fading as it grows tougher to partition the land between Israelis and Palestinians.

The international community, including the United States, says the settlements are illegal or illegitimate.

Promotion of settlement construction could complicate Clinton's visit. Clinton was set to arrive late Sunday in hopes of breathing new life into Mideast peace efforts.

The Palestinians say they will only resume peace talks if Israel stops building settlements on the occupied lands they claim.

Palestinian government spokesman Ghassan Khatib said Israel's settlement policy was "devastating the prospects of a two-state solution."

"The only way to explain this rapid expansion of settlements is the efforts of the (Israeli) government," Khatib said. "The government has been responsible for ... decisions to expand settlements and ... incentives that are given to settlements and settlers in order to expand settlements."

Netanyahu has rejected that demand, saying the fate of settlements should be decided in negotiations. He has repeatedly urged the Palestinians to return to talks without any preconditions.

The Palestinians do not trust Netanyahu, given his long history of support for Jewish settlement in the West Bank. Many members of Netanyahu's Likud Party, along with key coalition partners, are Jewish nationalists with close ties to the settlement movement.

At the same time, settlers have suffered several legal setbacks this year. Just two weeks ago, the government uprooted a small outpost built illegally on private Palestinian land. The Supreme Court is also forcing the government to evict residents of a larger outpost by Aug. 1.