Channel 10 TV used a traffic camera to broadcast live pictures of the demonstration, showing several rows of demonstrators standing across the six-lane highway, the Ayalon Freeway, as lines of cars lined up behind them.
"We have officers and fire engines on the scene," said Tel Aviv police spokeswoman Liat Pearl. "The firefighters are putting out the fires from the burning tires, officers are making arrests and we are working to clear the road."
Police finally got to the scene and dragged the settlers away, but not before they caused a massive traffic jam, reports CBS News Correspondent Robert Berger.
In other developments:
The Settlers Council said it had nothing to do with the highway blocking but added, "it is clear that these types of actions are a result" of Prime Minister Ariel Sharon's refusal to put the pullout plan to a referendum.
Israel plans to remove all 21 settlements from the Gaza Strip and four from the West Bank in the summer. Settlers and their backers are hotly opposed to the plan and intend to resist.
Several times in recent weeks, protesters have blocked main highways, including the entrance to Jerusalem and several main intersections around Tel Aviv, timing their protests to coincide with rush hour.
The barrier decision means it will encompass lands claimed by the Palestinians for a future state, including traditionally Arab east Jerusalem, the intended Palestinian capital. The barrier will also include a chunk of the Palestinian town of Bethlehem, south of Jerusalem, to include a Jewish shrine, officials said.
Israel began building a separation barrier in the West Bank two years ago, saying its aim was to keep out Palestinian attackers. Palestinians say Israel could have built the barrier on its territory if the only concern was security. They say the real intention was to grab West Bank land and draw a final border without waiting for a peace deal. One-third of the barrier has been completed.
Annan said after a meeting with Abbas that the United Nations is establishing a register of damages to Palestinian property and claims against Israel resulting from the barrier construction.
"We are establishing that register to be able in time to help with those claims," he said.
As Annan spoke, Palestinian policemen restrained hundreds of demonstrators at the main gate of the government compound.
The demonstrators carried signs reading "Resist the wall until its collapse" and "Bring down the wall," and scuffled with policemen, throwing rocks at the main gate of the compound.
Annan spokesman Stephane Dujarric said the U.N. General Assembly had voted for the establishment of the claims register, but that it was not a mechanism for exacting compensation.
Last summer, the General Assembly passed a resolution against the barrier, and the United Nation's world court said in an advisory ruling last year that the barrier is illegal and must be torn down.
The decision on the final route of the Jerusalem segment of the barrier was approved by the Cabinet last month and reviewed late Sunday in a meeting of senior Cabinet ministers chaired by Sharon, said a senior government official who spoke on condition of anonymity.
The ministers received final details of what barrier would enclose.
Under the plan, prepared by the National Security Council, the West Bank settlement of Maaleh Adumim would be included on the Israeli side of the barrier. Eleven crossings would be built into the barrier to allow access from the West Bank, and construction is to be completed by the end of the year, the official said.
The Palestinian refugee camp of Shuafat, which straddles the Jerusalem municipal boundary, will be encircled by a separate fence, with a crossing into the city. Many camp residents have Jerusalem identity cards. In Bethlehem, the barrier will cut off Rachel's Tomb, a Jewish shrine, from the rest of the city.
Having the Palestinians security forces crack down on Palestinian militants and stop attacks on Israel is a central demand of Israel for moving forward with peace talks and a main plank of the U.S.-backed "road map" peace plan.
"He (Abbas) has arrested several suspects involved in the Tel Aviv nightclub bombing ... The Palestinian security forces have carried out more than 150 anti-terror acts and arrests," Zeevi-Farkash said.
Zeevi-Farkash also praised Abbas for changing Palestinian rhetoric on attacks.
"There is also a shift in terminology: Terror acts are no longer called an 'act of sacrifice,' but only a 'terror act,"' Zeevi-Farkash said. "This shift was instigated by Abu Mazen and other Palestinian Authority senior officials."
However, Zeevi-Farkash warned that the calm since Abbas and Israeli Prime Minister Ariel Sharon declared and end to violence in a summit in Egypt last month was very fragile.