Israel reiterated on Friday its refusal to to extend curbs on settlement building that expire this month, despite US pressure and Palestinian threats to walk out of peace talks.
"The prime minister has not changed his position on this issue, there is no question of extending the moratorium," a senior government official told AFP, asking not to be named.
The ten-month measure to curb construction of settler homes in the Israeli-occupied West Bank concludes at the end of this month.
The decision not to renew the partial moratorium, which does not cover annexed east Jerusalem, was taken this week by the Forum of Seven top cabinet ministers, according to the daily Israel Hayom, which is close to the government.
The decision was communicated to US Secretary of State Hillary Clinton, who was in the Middle East this week in a bid to push forward the peace process, the newspaper said.
The issue of settlements is among the thorniest in Middle East peace negotiations, which Israel and the Palestinians restarted this month after a 20-month hiatus.
The two sides remain deeply divided on the renewal of settlement construction, a senior Palestinian official said after Israeli Prime Minister Benjamin Netanyahu, Palestinian president Mahmud Abbas and Clinton met for two days of trilateral talks this week.
The official said the negotiations held in Egypt and Jerusalem had failed to resolve the row which threatens to derail the peace process.
Abbas told Netanyahu during the talks that he would walk out of the negotiations if Israel does not renew the moratorium, according to an aide.
In a bid to resolve the row, the Americans have suggested a three-month extension in which the two sides could agree on borders, which could bring a "final halt to settlement on the lands of the future Palestinian state," a Palestinian official said.
The official added that US negotiators wanted a complete halt to settlements while Israel was insisting on continuing to build in major settlement blocs it hopes to keep in any final peace accord.
The killing Friday of a local commander of the Ezzedine al Qassam Brigades, the armed wing of Hamas in the West Bank, highlighted the continuing tension in the region despite the renewed peace efforts.
Israeli soldiers shot dead Iyad Shilbaya, 38, during a raid on the Nur Shams refugee camp in the northern West Bank.
"The assassination is a dangerous escalation that further weakens the credibility of an already shaky political process," Palestinian prime minister Salam Fayyad said in a statement.
Hamas, the Islamist movement that rules the Gaza Strip and is committed to the destruction of Israel, called Shilbaya "a martyr."
"The murder was the fruit of the negotiations," Hamas spokesman Sami Abu Zuhri said.
US envoy George Mitchell was meanwhile in Beirut to meet with Lebanese President Michel Sleiman as part of the renewed push by Washington to broker a comprehensive Middle East peace accord.
He travelled to south Lebanon, where he visited the headquarters of the United Nations peacekeeping force deployed there.
Asked by AFP whether Mitchell's discussions with senior peacekeeping officials addressed the sensitive issue of Hizbullah's weapons, deputy spokesman Andrea Tenenti said they concerned "only the issues related to activities on the ground."
Israel, which fought a devastating war with Hezbollah in 2006, has repeatedly accused the Shiite militant group of stockpiling weapons.
Syria and Lebanon are still technically at war with Israel and Washington is hoping to convince both states to enter into negotiations with the Jewish state and to support the Israeli-Palestinian peace talks.
Mitchell travelled to Lebanon from neighbouring Syria.
In Damascus, he said a peace deal meant an "agreement between Israel and the Palestinians, between Israel and Syria and between Israel and Lebanon and the full normalisation of relations between Israel and its neighbours."
