Israeli report: U.S., Israel strike settlement deal

JERUSALEM (Reuters) - An Israeli newspaper said on Wednesday Israel had won agreement from the United States for the continued construction of 2,500 housing units in Jewish settlements in the West Bank, despite U.S. calls for a freeze.

Israeli government spokesman Mark Regev said the United States and Israel have been trying to find common ground on the sensitive settlement issue, but he had no comment on the unsourced front-page report of a deal in the Maariv daily.

A U.S. embassy spokesman in Tel Aviv also had no immediate comment.

The report followed a briefing by Defence Minister Ehud Barak to Prime Minister Benjamin Netanyahu on his talks in London on Monday with U.S. envoy George Mitchell on ending a rift with Washington over its demand for a settlement freeze.

Western officials said the United States was moving in the direction of making allowances so Israel could finish off at least some existing projects which are close to completion or bound by private contracts that cannot be broken.

"This is a concession to avoid causing undue hardships on individuals" who have signed contracts and have already paid for work that cannot be refunded, one of the officials said, adding that discussions were still under way.

"We're talking about polishing off things that are basically done," the official said.

Israel estimates that 2,500 units are in the process of being built and cannot be stopped under Israeli law. Maariv reported the units are in 700 buildings in various settlements and that Washington had agreed to their completion.

A report in the Yedioth Ahronoth daily, Israel's most popular newspaper, was more cautious, saying Israel and the United States were "close to an agreement on settlements". It also cited the same housing figures.