Israeli settlement construction in the West Bank increased sharply in 2008, despite Israel’s pledge at the beginning of the year to freeze all construction, according to a new report by an Israeli non-governmental organization [.pdf].

The report, released Wednesday by the group Peace Now, found that settlement construction in 2008 increased by almost 60 percent, including new construction both inside and outside of the security barrier and within illegal settlement outposts.

The Peace Now study was released on the same day that newly appointed U.S. peace envoy George Mitchell  a longtime critic of settlement construction  arrived in Israel. The increase in construction is expected to be a source of friction in Mitchell’s negotiations with Israeli leaders.

Critics warned that the increase in construction is likely to damage the already fragile prospects for a two-state solution in Israel and Palestine.

"Every structure built in a settlement makes the two-state solution more difficult to achieve and further jeopardizes Israel’s future as a Jewish democratic country," said Debra DeLee, president of Peace Now’s sister organization Americans for Peace Now.

The report found that at least 1,257 new structures were built in West Bank settlements in 2008, up sharply from 800 in 2007. This figure did not include the 261 new structures built in illegal outposts in the West Bank.

Nearly 40 percent of the new structures were built east of the security barrier, many of them extending deep into the West Bank.

And despite the Israeli government’s pledge to crack down on the illegal outposts, the study found that "not a single real outpost was evacuated."

Additionally, the report found evidence that land confiscations were continuing to take place, contradicting the government’s stated policy.

Following the Annapolis peace conference in late 2007, Israeli Prime Minister Ehud Olmert pledged to freeze settlement construction and remove some existing settlements.

In November 2008, he announced that the government would cut off funding for illegal outposts  thereby admitting that it had continued to fund them up to that point.

The Peace Now report found that the Israeli government had encouraged the increase in settlement construction both through active aid and through non-enforcement of its stated policies.

Also on Wednesday, U.S. envoy Mitchell arrived in Jerusalem and met with leaders including Olmert, Foreign Minister Tzipi Livni, and Defense Minister Ehud Barak. He is scheduled to meet with Palestinian Authority President Mahmoud Abbas and Prime Minister Salaam Fayad in Ramallah, and Likud Party chief Binyamin Netanyahu on Friday.

Although preliminary reports indicated that the aftermath of the war in Gaza was the primary topic under discussion at Wednesday’s meetings, the settlements are expected to be a continued sticking point going forward.

Mitchell served an earlier stint as Middle East peace envoy in 2001, after which his committee released a report that was harshly critical of Israeli settlement policies.

The 2001 Mitchell report called on Israel to "freeze all settlement activity, including the ‘natural growth’ of existing settlements." This call was taken up in the George W. Bush administration’s "road map" for the peace process, which formed the basis of the 2007 Annapolis conference.

Mitchell’s insistence on a settlement freeze as a precondition for the peace process led many right-leaning pro-Israel groups in the U.S. to oppose his recent selection as peace envoy. Abraham Foxman, the influential head of the Anti-Defamation League, stated that he was "concerned" about Mitchell’s "meticulously evenhanded" approach to the region.

Nevertheless, in the eight years since Mitchell’s initial report, his calls for a halt to the settlement project have become a mainstream consensus view.

Olmert and his predecessor Ariel Sharon  who had been an original architect of the settlement project  both came to believe that it was likely to doom Israel if left unchecked.

Given the basic demographic trends, an Israeli state encompassing the West Bank and Gaza would soon have an Arab majority. This would force Israel to choose between becoming a secular and binational state with full political rights for all citizens, or an undemocratic state that denied full political rights to Arab residents.

It was partially this logic led Sharon to withdraw from the Gaza Strip and remove Israeli settlements there in 2005.

However, the challenge in the West Bank is much greater. There are now estimated to be over 285,000 settlers in the West Bank, many of them militantly opposed to a two-state solution. The Israeli government has generally paid lip service to the goal of curbing the West Bank settlers, but has been reluctant to crack down on them.

If Netanyahu becomes the next Israeli prime minister, as currently seems likely, he and Mitchell could be set to clash on the settlements issue.

Netanyahu has recently tacked to the center on the issue, telling Quartet envoy Tony Blair on Sunday that a Likud-led government would build no new settlements.

However, Netanyahu said that he would continue to permit "natural growth" of existing settlements  a qualification that strips his promise of much of its meaning.

Israel has not officially created any new settlements in over a decade, instead ascribing all settlement construction to "natural growth." It was this consideration that led both Mitchell’s 2001 report and Bush’s road map to explicitly forbid construction under the auspices of "natural growth."

Gershom Gorenberg, author of The Accidental Empire, a 2007 history of the settlements, urged Mitchell to stand firm against Netanyahu in an open letter published Wednesday in The American Prospect.

Netanyahu’s position is a "con," Gorenberg wrote. "You need to insist on [a full settlement freeze] publicly in the months ahead."

At the moment, however, none of the leading candidates for prime minister appears to have much appetite to confront the settlers. How much pressure Mitchell and the Obama administration are willing to exert on the Israeli government to do so will be one of the first tests of the U.S.-Israel relationship in the months ahead.