Israeli Prime Minister Benjamin Netanyahu appears to have rebuffed US demands for a total freeze on settlement building in the West Bank.
He is quoted as saying he had told Washington he would instead consider "scaling down construction" .
The US has called on Israel to halt all construction work in a bid to restart peace talks with the Palestinians.
US Mid-East envoy George Mitchell is in the region to finalise terms for renewed peace talks.
The US hopes the Israeli and Palestinian leaders will meet on the sidelines of the UN General Assembly meeting in New York later this month.
Mr Mitchell said, after talks with Israeli President Shimon Peres on Sunday, that they were working hard to reach agreement on "many outstanding issues".
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