Israel's rightwing opposition leader, Benjamin Netanyahu, who leads the polls before next week's parliamentary elections, warned today against giving up any occupied territory to the Palestinians, saying it would be "grabbed by extremists".

Under Netanyahu, leader of the Likud party, Israeli settlements in the occupied West Bank are likely to grow more rapidly, putting Israel at odds with the new US administration.

In a speech, Netanyahu said that rather than peace talks with the Palestinians about giving up territory, he favoured economic development – a plan of "economic peace". He has stopped short of endorsing a two-state solution that would see the creation of an independent Palestinian state.

It is a stance that is likely to draw criticism from Washington, particularly from new Middle East envoy George Mitchell, who wrote a report in 2001 explicitly calling for a halt to all settlement growth. Since then the Jewish settler population has increased significantly until today it stands at nearly 500,000 settlers in the West Bank and east Jerusalem.

Netanyahu has said he will not be bound by current prime minister Ehud Olmert's commitment to withdraw from some West Bank settlements and from large parts of the occupied territory as a whole. "I will not keep Olmert's commitments to withdraw and I won't evacuate settlements," Netanyahu was quoted as saying last week in the Ha'aretz newspaper. "Those understandings are invalid and unimportant."

Netanyahu is opposed to territorial withdrawals, even from the Golan Heights, captured by Israel from Syria during the 1967 war. Others, including members of the current Kadima-led government, have said they would give up sovereignty over the Golan Heights in return for a peace deal with Syria.

Last month Netanyahu said there were other "models" for the Palestinians short of complete sovereignty.

His comments come at a time of growing assertiveness from the settler movement. None of the leading election candidates have taken a strong position against the settlers. Even Tzipi Livni, head of Kadima, who favours the creation of a Palestinian state as long as Israel's interests are met, said she believes in "maintaining maximum settlers and places that we hold dear such as Jerusalem".

There is frequent evidence of continued settlement expansion, despite the latest year-long round of peace talks. Under the US road map, which remains the basis of peace negotiations, Israel is committed to halting all settlement growth. All settlements are illegal under international law.

Yesterday, Ha'aretz reported that defence minister Ehud Barak had agreed to approve a new settlement in return for the evacuation of Migron, a settlement of 45 families which even the Israeli government regards as illegal. Evidence of the approval emerged in an affidavit submitted on Monday to the Israeli high court. A plan is being considered for 1,400 housing units at the new settlement. In January last year, Olmert committed himself to evacuating settlers from Migron within six months, though it now appears that no one will leave the settlement for at least another two or three years.

It has also emerged that Israel has spent more than 200m shekels (£35m) in the past two years preparing infrastructure to build thousands of homes between east Jerusalem and Ma'ale Adumim, one of the largest settlement blocs on the West Bank. A police base was built on the site in May last year and, according to Ha'aretz, much more building is expected in the area. The defence ministry told the paper it regarded Ma'ale Adumim as "an inalienable part of Jerusalem and the state of Israel in any permanent settlement".

A secret Israeli government database on settlement construction that was leaked last week to an Israeli human rights group showed that in three-quarters of all West Bank settlements some construction had taken place without proper permits. It showed more than 30 settlements were built at least in part on privately owned Palestinian land.

Michael Sfard, the lawyer for the Yesh Din rights group, said it amounted to a "severe indictment" of Israel's military and government. The group plans to use the information to file lawsuits on behalf of Palestinians.