Israeli officials announced the new construction on Friday, while suggesting they might halt some building in the West Bank in exchange for overtures from the Arab world.
But while Israel portrayed its willingness to consider a building slowdown as a concession toward peacemaking, the proposed new construction flouted U.S. demands for a complete settlement freeze. And it drew swift denunciation from the Palestinians, who have conditioned the resumption of peace talks on a halt to all settlement activity.
Israel says a curtailment in construction would not apply to the new housing units, the 2,500 units currently under construction, or to east Jerusalem, which the Palestinians claim for the capital of a future state. Israel captured that sector of the city in 1967 and Netanyahu's hawkish coalition objects to any territorial concessions there.
If Netanyahu hoped to defuse a coalition crisis by linking a possible building slowdown to the approval of new building projects, then the tactic appeared to work, judging by ministers' comments ahead of the weekly cabinet meeting.
The head of the ultra-Orthodox Jewish Shas Party, Eli Yishai, spoke supportively of a "strategic pause" in construction. And Transportation Minister Yisrael Katz called Netanyahu's move "well-conceived," adding that no agreement had been reached with Washington on a construction freeze.
Netanyahu pointedly did not address the issue in prepared remarks before the weekly Cabinet meeting.
On Friday, White House press secretary Robert Gibbs said the U.S. regretted Israel's plans to approve additional settlement construction.
"As the president has said before, the United States does not accept the legitimacy of continued settlement expansion and we urge that it stop," Gibbs said in a statement.
In recent weeks, however, in the face of Netanyahu's staunch refusal to freeze construction, the U.S. administration has appeared to back down from its initial insistence that Israel halt all settlement expansion.
Washington's Mideast envoy, George Mitchell, is due in the region later this week to try to bridge differences.
Peace talks have been suspended since shortly before Netanyahu's election, but Israeli and Palestinian officials had both said that Netanyahu and Palestinian President Mahmoud Abbas might meet for the first time at the U.N. General Assembly in New York later this month.
Abbas, however, hinted Friday that such a meeting would not take place while settlement construction continues, saying "the meeting is not scheduled yet."
On Sunday, Palestinian negotiator Saeb Erakat said the new construction plans "really undermines the efforts being exerted to revive the peace process"
About 300,000 Israelis live among about 2.5 million Palestinians in the West Bank. An additional 180,000 Israelis live in east Jerusalem neighborhoods built since Israel captured the area in the 1967 Mideast war.
By Associated Press Writer Amy Teibel