President Obama's public quarrel with Israel over the growth of Jewish settlements in the West Bank is developing into a test of the U.S. leader's international credibility, say foreign diplomats and other observers.

Obama and his senior aides have insisted for weeks that the Jewish state completely halt the expansion of its settlements. But now, with U.S. and Israeli officials apparently close to an agreement on the issue, it is widely expected in Israel and the Arab world that the administration will give ground and support at least some growth in the 120 communities.

Opponents of such a move say the concessions will not only disappoint the Arabs whom the president has courted, but also will be read by adversaries around the globe as a signal that the president can be forced to back down.

"It will tell people who are trying to bend his will, 'You have hope,' " said Ziad Asali, president of the American Task Force on Palestine, a pro-Palestinian advocacy group in Washington.

Last month, Secretary of State Hillary Rodham Clinton declared that Obama opposed any growth, saying that he "wants to see a stop to settlements -- not some settlements, not outposts, not 'natural growth' exceptions."

Obama's decision to carry on an open dispute with Israel has been unusual for an American president. But the White House believed that winning Israeli concessions would help him revive Middle East peace talks and build Muslim support for U.S. efforts in the region as well as Pakistan and Afghanistan.

After weeks of talks, U.S. officials have signaled that they are close to an agreement with the government of Israeli Prime Minister Benjamin Netanyahu that could open the way to a resumption of high-level peace negotiations between the Israelis and Palestinians. Former Sen. George J. Mitchell, Obama's envoy for Middle East peace, said this week that he hoped for a U.S.-Israeli accord "very soon."

The talks have focused on two issues the Israelis raise to argue against a complete halt to settlement growth, officials say.

The Israelis say the nearly 300,000 Jewish settlers living in the West Bank need to be permitted a "normal life," meaning they should be able to add rooms to their homes, schools and other facilities to accommodate normal population growth of existing communities.

Second, they argue that projects underway should be permitted to be completed. They note that if the Israeli government tries to halt a settler from building on private land within an existing settlement, the courts may intervene to overrule the move.

Michael B. Oren, the Israeli ambassador to the United States, said in interviews in Israel this week that "creative solutions" had been devised and he predicted that an accord would be reached. Mitchell is to meet with Netanyahu in Paris next week.

One U.S. official, asked about the credibility issue, said, "I'm quite confident that when this issue is resolved -- one way or another -- all the parties involved will understand that the president should be taken at his word."

Some critics of Israel's settlements are not reassured.

Saeb Erekat, chief negotiator for the West Bank-based Palestinian Authority, said the Obama administration should hold Israel to its commitment under earlier peace plans to freeze all settlement growth.

Asali, of the American Task Force on Palestine, said that if the U.S. were to make substantial concessions, it would have wide ramifications for peace efforts. He said it would reduce the likelihood that the patchwork of Palestinian-held land could be united into a viable state, and it would undermine efforts to strengthen the moderate Palestinian Authority leadership in the eyes of Palestinians.

An Arab diplomat said a perception that Obama had caved in would greatly affect the willingness of Arab countries to make concessions to Israel. U.S. officials have urged Arab countries to take steps to normalize ties with Israel, such as opening diplomatic posts or permitting commercial airline stops in their countries.

Winning concessions from Arab countries "is going to be difficult in any case. If there are American concessions, it will be very difficult," said the diplomat, who requested anonymity because of the sensitivity of the issue.

Elliott Abrams, an architect of President George W. Bush's Middle East policy, said U.S. officials needed to be able to argue when a deal was announced that they had made good on their pledge not to permit growth. But he said the Israeli government could be expected to argue that it had won U.S. support for some growth.

He said the two governments would be putting "contrasting spins" on the agreement and that it would be difficult for the Obama administration to rebut any reporter who pointed out that U.S. officials had insisted there would be no loopholes.

Such an outcome, Abrams said, would raise questions about "why the administration concluded they ought to do this with a public fight."

Israel began building settlements in the West Bank shortly after capturing the territory in the 1967 Middle East War. Repeated U.N. resolutions have insisted that Israel abide by the Fourth Geneva Convention, which forbids a country to settle its civilians in areas conquered militarily.

Israeli officials say they won't build new settlements or expropriate land to enlarge the space occupied by existing settlements.

But the boundaries of most settlements are far larger than the ground currently occupied by residences and other buildings, so that rules allowing growth based on "normal life" could in time result in construction of tens of thousands of new homes.

According to data compiled by Israel's Defense Ministry and disclosed in January by the newspaper Haaretz, about 46,500 future housing units have obtained the ministry's approval within existing master plans and await only a government decision to build. If the government gave all of them the green light, it would nearly double the number of settler homes in the West Bank in 20 years.

Israeli officials argue that the growth of settlements doesn't prejudice the outcome of negotiations with the Palestinians because most of the growth is in huge blocks that Israel expects to keep as part of any peace agreement.