RAMALLAH, West Bank - Palestinians accused the United States on Sunday of destroying hopes of negotiations with Israel for a Palestinian state, after Washington signaled it could accept some growth of settlements in the West Bank.

The Jewish communities on land occupied in the 1967 Middle East war are seen as illegal by most of the world -- though Israel disputes this -- and are regarded by Palestinians as one of the biggest obstacles to ending decades of conflict.

The Bush administration signaled flexibility on Saturday on some limited growth in West Bank settlements to help embattled Israeli Prime Minister Ariel Sharon as he tries to get a plan for withdrawal from occupied Gaza past his far right.

Palestinians, who fear uprooting the Gaza settlers is a cover for strengthening Israel's hold on bigger West Bank enclaves, said the United States was tearing up its own peace "road map" -- a blueprint for a Palestinian state that has been stalled by violence.

"That is destroying the road map. That is what destroys the peace process and the two-state solution," cabinet minister Saeb Erekat told Reuters.

"I believe the American administration should be committed to the road map, which calls for a complete halt of settlement activities, including so-called natural growth."

Until now, the United States has demanded the freezing of all building in the West Bank settlements, which house more than 230,000 people.

But a senior U.S. administration official, commenting on Israel's plan to build 1,000 more settler homes, said on Saturday: "There is some flexibility there."

NEW BUILDING INSIDE SETTLEMENTS

While the White House denied any official change in the U.S. stance, an official said efforts were under way to clarify with the Israelis what "settlement activity" means.

Based on this new understanding, officials said Washington could agree to new construction provided it did not take place outside the boundaries of existing settlements, in undeveloped parts of the West Bank.

A senior Israeli source said there was a clear understanding that the United States was trying to help Sharon push through his plan for "disengagement" from nearly four years of conflict with the Palestinians.

"This is crucial for Sharon to get through the disengagement plan. He needs it for the Israeli public and his party. The Americans understand that," the senior source said.

Accepting limited construction within existing settlements could also benefit President Bush, who is loath to cross Jewish-American voters and other conservative supporters of Israel in the run-up to the November election.

Sharon's unilateral initiative involves removing all the 8,000 settlers from Gaza and four of the 120 settlements in the West Bank by the end of next year.

The change in U.S. attitude was unable to save Sharon from an embarrassing defeat last week by right-wing Likud party members, who voted down a possible coalition with dovish Labour that would have made it easier to implement the pullout.

Hard-liners in Likud, which was long opposed to ceding any land, say giving up Gaza would "reward Palestinian terrorism."

Israeli sources said Sharon would now pursue contacts on forming a coalition with ultra-Orthodox Jewish parties, but might woo Labour at a later date. Labour leader Shimon Peres has toned down the call he made for early elections after the Likud vote against letting Labour join the government.

© 2004 Reuters Ltd

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