The Israeli government of Benjmain Netanyahu is seeking to deflect Washington's demand for a total settlement freeze by complaining that it ignores secret agreements between his predecessors and the Bush administration that construction in existing Jewish settlements could continue.

The rift between Mr Netanyahu's government and the US appeared to deepen yesterday, with a clear declaration by President Barack Obama that a freeze – including on "natural growth" of West Bank settlements – was among Israeli "obligations".

But Mr Netanyahu's government – which has made it clear it will not accept a total freeze – is pushing to restore at least part of the private "understandings" which it is emerging were struck between Israel and the previous US administration despite the Bush team's repeatedly stated opposition to settlement construction.

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The Israeli government is arguing that Ariel Sharon, with reservations, agreed in 2003 to the internationally endorsed Road Map and the withdrawal of 8,000 settlers from Gaza in 2005, only on condition that Israel could proceed with expansion within the physical boundaries of existing West Bank settlements. A senior Israeli official familiar with the current talks with the US said: "When the government of Israel adopted the Road Map... it was based on understandings reached with the US. It is hard for the US to say we have to keep to our commitments but ignore the understandings."

The argument was being pressed in talks that Israel's Defence Minister Ehud Barak was holding in Washington yesterday and is likely to feature in discussions that the US Middle East envoy, George Mitchell, is expected to have with the Israeli leadership here on Monday. Israeli officials are braced for President Obama to repeat his call for a settlement freeze when he makes his major speech on US relations with the Muslim world in Cairo tomorrow.

Israeli officials also complain that the new team in Washington is making "no distinction" between settlements in the larger blocs that Mr Bush told Mr Sharon in 2004 he expected would be in Israeli territory in any final status deal with the Palestinians, and those elsewhere in the occupied West Bank. Although the Bush administration later "clarified" that borders were a matter for negotiation, Israel swiftly assumed it was entitled to continue building within such blocs.

There is no sign that President Obama sees himself bound by any such covert oral understandings reached with his predecessor's administration – the status and durability of which has reportedly been challenged with vigour by US officials. Mr Obama told National Public Radio: "I've said very clearly to the Israelis both privately and publicly that a freeze on settlements, including natural growth, is part of those obligations." He added that Palestinians also had parallel obligations to improve security and end incitement.

The senior Israeli official suggested that Mr Netanyahu was ready to reach an agreement with the US precluding settlement-building that would in his view prejudice final status negotiations with the Palestinians, and that this would include not building on E1, the bitterly controversial planned corridor linking Jerusalem to the large settlement of Ma'ale Adumim. The official rejected reports of a secret coalition agreement between Mr Netanyahu and his hard-right Foreign Minister, Avigdor Lieberman, to resume E1-building.

But the Palestinians – and for now at least the US – argue that any further settlement construction would prejudice negotiations, not least in Arab East Jerusalem where Mr Netanyahu is determined to keep a free hand in building settlements. Israel annexed East Jerusalem after the Six Day War in 1967, but this has never been accepted by the international community.

Haaretz reported yesterday that Washington was "furious" over plans by the Jerusalem municipality, backed by the Interior Ministry, to build a nine-storey 200-room hotel in East Jerusalem, just 100 metres from the Old City, which includes a Palestinian market and kindergarten.

The row has exposed the extent that the Bush administration was willing to sanction settlement-building, despite its publicly stated policy. Dov Weisglass, who was the closest lieutenant of then-prime minister Sharon, said in a newspaper yesterday that the deals originated in a 1990s agreement on "natural growth" which was further refined in 2002, "though the Americans completely denied the existence of the understandings". They have been confirmed by Bush administration assistant secretary of state Elliott Abrams.

Mr Weisglass said it had been agreed between Mr Sharon, himself, Mr Abrams and another US official, Stephen Hadley, that settlement growth could continue provided it did not involve new settlements, that no further "Palestinian land" would be expropriated, that expansion would be within the "existing construction line" and that public funds would not be used to encourage settlements. The Bush administration's secretary of state, Condoleeza Rice, confirmed the agreement, he said.