The Israelis complain that the focus on settlements is out of proportion and the issue should be resolved during peace talks, not before. They have pledged not to establish any new settlements and note that the United States for years tolerated "natural growth" of settlements, even though the "road map" peace plan presented by the U.S. in 2003 prohibited it.
Israeli officials say Obama is pressing for a freeze to enhance his credibility in the Arab world, but they say they can't legally restrict growth in places such as Maale Adumim, which many expect will remain part of Israel under any deal.
U.S. and Israeli officials are expected to resume negotiations on the issue today.
The standoff has been an unwelcome distraction for Prime Minister Benjamin Netanyahu's new government. Though polls show Israelis are split on the issue of a freeze, he took office as part of a coalition that vowed to keep building. Settlers, who now number nearly 500,000 in the West Bank and East Jerusalem, are pressing him to keep his word.
Palestinians say there is no point to talks as long as the settlements continue to grow and Israelis further entrench themselves on disputed land.