Netanyahu defies Obama call for settlement freeze

By Jeffrey Heller and Adam Entous

JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu, defying U.S. President Barack Obama's call for a settlement freeze, said on Monday Israel would continue to build in existing Jewish enclaves in occupied territory.

"Freezing life would not be reasonable," he told lawmakers.

But in an apparent gesture to Obama, who has sought to revive stalled peace talks and plans to address Muslims from Egypt on Thursday, Netanyahu might ease Israel's crippling blockade of the Hamas-ruled Gaza Strip, Israeli officials said.

In a mark of passions mounting in the West Bank, Jewish settlers, enraged at troops' removal of a hilltop outpost, set fire to Palestinian fields and pelted motorists with rocks.

Netanyahu's pleas that settlement cannot be fully halted seem to be landing on stony ground in Washington under a new administration keen for Arab support. Diplomats say a range of possible measures are being reviewed by the United States and European Union to bring pressure to bear on their Israeli ally.

Talk of such sanctions prompted one senior Israeli official to complain: "The Netanyahu government is acting the same as its predecessors. The one who has changed policy is the American administration. The new administration is trying to get out of understandings achieved under the Bush administration."

Obama, who has promised to re-engage in peace diplomacy after the relatively detached approach under his predecessor George W. Bush, seemed to nudge Netanyahu again on Monday.

Asked about the Muslim world's perception that Washington is biased in favour of Israel, Obama told National Public Radio the United States has a "special relationship" with the Jewish state, which he called a "stalwart ally".