WASHINGTON (Reuters) - The Israeli government’s plan to approve more construction in Jewish settlements drew a sharp rebuke from the Obama administration on Friday, further complicating U.S. efforts to revive Middle East peace talks.

A Palestinian labourer works at a construction site in the West Bank Jewish settlement of Maale Michmash near Jerusalem August 24, 2009. REUTERS/Baz Ratner

The White House reacted with dismay to word that Israeli Prime Minister Benjamin Netanyahu will authorize the building of several hundred new settler homes on occupied land before considering a freeze on such construction.

President Barack Obama has been pressuring Netanyahu’s right-leaning government to halt settlement building, a major obstacle in the stalled Israeli-Palestinian peace process, as a prelude to a resumption of the negotiations.

The Obama administration has been holding out the prospect of a three-way meeting in New York of Obama, Netanyahu and Palestinian President Mahmoud Abbas later this month if there is sufficient progress toward resuming peace efforts.

“We regret the reports of Israel’s plans to approve additional settlement construction,” White House spokesman Robert Gibbs said.

“As the president has said before, the United States does not accept the legitimacy of continued settlement expansion and we urge that it stop. We are working to create a climate in which negotiations can take place, and such actions make it harder to create such a climate,” Gibbs said in a statement.

It was another sign that the most serious rift in U.S.-Israeli relations in a decade will be hard to bridge as Obama tries to meet his pledge to make Middle East peacemaking a higher priority than his predecessor, George W. Bush.

The Palestinians insisted they would accept nothing less than a total freeze on settlement construction in the occupied West Bank, land they want as part of a future state.

Netanyahu is also under pressure from many lawmakers in his rightist Likud party to resist Obama’s push for a suspension of settlement building.

A Netanyahu aide, who declined to be identified by name, said that after the several hundred housing units are authorized, the Israeli leader would be prepared to consider a moratorium on building that lasted a few months.

Israel is already building some 2,500 housing units at West Bank settlements that are in various stages of construction.

PALESTINIANS DEMAND TOTAL FREEZE

Palestinian officials say they will resume talks only if Israel stops all building within Jewish enclaves in the West Bank, in keeping with a 2003 U.S.-backed “road map” peace plan that also called on the Palestinians to rein in militant attacks on Israelis.

Gibbs said, however, that the administration appreciated what it sees as Israel’s “stated intent to place limits on settlement activity and will continue to discuss this with the Israelis as these limitations are defined.”

But Nabil Abu Rdainah, an aide to Abbas, said: “A partial settlement freeze is not enough.”

Despite the latest development, a U.S. official said the Obama administration believed it was possible to reach a deal to resume overall peace talks, which have been stalled since December.

“We still think we can bring this phase to a positive conclusion, including action by Israel on settlements, in the next few weeks,” the official said.

Obama’s Middle East envoy, George Mitchell, met Netanyahu aides in New York this week to work on a deal to resume talks in time for a possible announcement at the U.N. General Assembly in late September. The official said Mitchell was expected to go to the region again possibly late next week.

Obama has taken the public stance that Israel must halt all settlement activity, including so-called “natural growth” under which new homes are built within existing enclaves to accommodate growing settler families.

But U.S. officials privately have hinted at flexibility on the issue if the two sides agree to a compromise. Palestinians say settlements, built on land Israel occupied in a 1967 war, would deny them a viable state.

The Obama administration is seeking to bridge the Israeli and Palestinian positions and persuade Arab states to take steps toward normalizing relations with the Jewish state, but it has met resistance over who should make the first move.

Obama sees engagement in Palestinian-Israeli peacemaking as crucial to repairing America’s image in the Muslim world and drawing moderate Arab states into a united front against Iran.