Israel’s new right-wing Government was set for its first stand-off with the Obama Administration today, after it openly rebuffed a call from Washington to a total freeze on all Jewish settlements in the West Bank.

Hillary Clinton, the US Secretary of State, called last night for Israel to halt all construction of settlements, considered illegal by the international community as they are civilian communities built on war-conquered land.

Binyamin Netanyahu, the hawkish Israeli Prime Minister, in Washington last week offered to dismantle new settlement outposts in return for being allowed to continue “natural growth” on the established West Bank communities. But Mrs Clinton made a surprisingly curt rebuttal to the proposal, insisting that Mr Obama – who travels to Cairo next week to try to heal strained US ties with the Muslim world – wanted a blanket ban on settlement growth.

“He wants to see a stop to settlements — not some settlements, not outposts, not 'natural growth' exceptions,” she said. “We think it is in the best interests [of the peace process] that settlement expansion cease. That is our position. That is what we have communicated very clearly . . . And we intend to press that point.”

A spokesman for Mr Netanyahu – who clashed with President Bill Clinton when he was prime minister of Israel in the late 1990s – said that permission would be given to continue construction in existing settlements, some of which are sprawling towns built in the four decades that Israel has occupied the West Bank.

“Normal life in those communities must be allowed to continue,” Mark Regev said.

Mr Netanyahu refuses to endorse the concept of an independent Palestinian state, but the US President insists that a two-state solution is the only way ahead.

The Israeli coalition, made up mainly of right-wing, nationalist and religious parties, but also including the centre-left Labour Party which holds the defence portfolio, came to power earlier this year just as Mr Obama came to office. Observers have been expecting it to clash with Washington, Israel’s key strategic ally, ever since.

The spat between the two allies came as Mahmoud Abbas, president of the Palestinian authority, headed to Washington to discuss US efforts to revive the peace process with Mr Obama. Top of his demands is the freeze of all settlement growth, which Palestinians see as an important obstacle to peace. Israeli right-wingers warn that a Palestinian state could lead to an Islamist take over of the West Bank, as happened in Gaza two years ago.

Religious settlers, who often make the most determined builders of unauthorised outposts, argue that the land was promised to them by God.

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