Israel's latest peace initiative was only a few hours old when it ran into fierce opposition from the US and the Palestinians.
Ignoring pleas from the Obama administration that Israel should suspend all building work at Jewish settlements, officials unveiled a plan today authorising the construction of hundreds more houses on Palestinian soil.
In a nod to Washington, Binyamin Netanyahu, the Prime Minister, said he would then agree to a temporary freeze on settlements in the occupied West Bank.
The move came as a surprise to US and Palestinian officials involved in the negotiations leading to a new Middle East peace process. President Obama had hoped to launch formal talks between Palestinians and Israel later this month.
"We regret the reports of Israel's plans to approve additional settlement construction," Robert Gibbs, the White House spokesman, said. "As the President has said before, the United States does not accept the legitimacy of continued settlement expansion and we urge it to stop."
"In the end, America will be forced to do what is necessary to bring the Israelis and the Palestinians back to the negotiation table. But the Netanyahu Government has proven difficult to work with," said another US official.
Washington is pushing Mr Netanyahu to freeze all construction in the settlements, which have been a key impediment to the peace talks. But the Jewish settlements, built on land earmarked for a future Palestinian state, are fiercely supported by much of the right-wing constituency that elected Mr Netanyahu.
The new plan drawn up by Mr Netanyahu and outlined by officials close to him seeks to placate the right-wing elements of his coalition, while moving forward on conditions laid down by the Obama Administration.
It proposes that Israel would agree to a freeze of settlement building for up to nine months, excluding 2,500 housing units that are already under construction, and settlement projects in East Jerusalem. In exchange, Mr Netanyahu hopes that Arab states will begin to normalise ties with the Jewish state, allow Israel to open offices in Arab countries and grant overflight rights for Israeli aircraft.
Mr Netanyahu also plans to approve the construction of approximately 500 additional housing units, bringing the total number of units to 3,000, aides said. The proposal infuriated Palestinian negotiators who accused Israel of posturing for peace while attempting to "worm" more illegal construction into the deal.
"What the Israeli Government said is not useful. It is unacceptable for us. We want a freeze on all settlement construction," said Mahmoud Abbas, the Palestinian President. He reiterated that the entire Middle East peace process hinged on a freeze of all Israeli settlement construction.
Saeb Erekat, a senior Palestinian negotiator, also slammed the move, stating that it was unacceptable and could threaten to detail progress made in the peace process.
Mr Abbas is under US pressure to accept Israel's conditions ahead of a summit being planned on the fringes of the UN General Assembly meeting between himself, Mr Netanyahu, and President Obama.
Washington's Middle East envoy George Mitchell, who is due in the region next week, has been pressing Israeli and Palestinian negotiators to reach a basic understanding before the meeting, brokered by the US Administration. It appeared unlikely, however, that the US knew of Mr Netanyahu's plan to add an additional 500 housing units to those approved for construction.
Kurt Hoyer, spokesman for the US embassy in Tel Aviv, said that Washington would be unlikely to accept anything "contrary to the spirit of negotiations they've been undertaking", adding it was doubtful the US had signed off on the Israeli decision.
American officials have long been pushing for a settlement freeze, with one senior State Department official telling the Jerusalem Post newspaper that a nine-month halt to construction would be "long enough to be credible and for negotiations to proceed".
There has been a great deal of speculation regarding the concessions Mr Netanyahu is willing to make. In a landmark speech earlier this year, he declared for the first time that Palestinians should be granted an independent state.
Nevertheless, construction of Jewish settlements in the West Bank has continued, albeit at a slower pace, since he took office. Government statistics released this week showed that Jewish construction in the settlements fell by one-third in the first half of 2009.
Palestinians hope to make Jerusalem their future capital, and the 1967 Green line, which roughly demarcates the border upon which the negotiations are being conducted, establishes east Jerusalem as part of a unified Palestinian State.
"Jerusalem is the one issue that Netanyahu will not compromise over. He has stressed this both publically and within the party," one MP in the Prime Minister's Likud party insisted.
Palestinians negotiators, however, say that a deal on Jerusalem is still within reach, and that they have made it clear to Israeli and US officials that no final peacen accord will be reached without a Palestinian stake in Jerusalem.