By Ali Sawafta
RAMALLAH, West Bank (Reuters) - Palestinians reject any deal between Israel and the United States that would allow even limited Jewish settlement construction in the occupied West Bank, a top Palestinian negotiator said Sunday.
"There are no middle-ground solutions for the settlement issue: either settlement activity stops or it doesn't stop," Saeb Erekat told Voice of Palestine radio.
Erekat said Palestinian President Mahmoud Abbas expressed that message in a letter Saturday to U.S. President Barack Obama.
Erekat was responding to reports Israel and the United States were discussing a compromise that would allow some building in existing settlements under what Israel terms "natural growth" to accommodate expanding families.
A U.S. official denied Wednesday a report in the Israeli daily Maariv that the Obama administration agreed work could continue on 2,500 housing units whose construction had begun, despite its call for a total freeze to spur peace efforts.
The report followed talks in London last week between George Mitchell, Obama's special Middle East envoy, and Israeli Defence Minister Ehud Barak aimed at healing a rift over continued settlement activity.
The U.S. State Department said Mitchell was expected in the region "soon" for talks with Israeli and Palestinian officials.
Barak has been seeking a deal with the United States that would include initial steps by Arab states to normalise relations with Israel in return for limiting settlement activity.
Israeli Prime Minister Benjamin Netanyahu Sunday renewed his call for Abbas to resume peace talks, telling his cabinet, "there is no reason for us not to meet anywhere in Israel."
In separate remarks, Netanyahu said Palestinians "must finally abandon the demand" to resettle families of hundreds of thousands of refugees of a 1948 war over Israel's establishment, which he said could "undermine" the Jewish state's existence.
Addressing a memorial to the founder of Zionism, Netanyahu reiterated demands for Palestinians to explicitly recognise Israel as a Jewish state, calling this "the key to peace."
Palestinians have said they would not revive stalled peace talks with Israel unless its settlement activities stopped, that they have recognized Israel under past interim peace deals and that refugees must be compensated or resettled.
"If settlement continues Israel will be allowed to build one thousand units here and two thousand units there, which will lead Arabs and Palestinians to believe that the American administration is incapable of swaying Israel to halt its settlement activities," Erekat told the radio.
"The message is clear: settlements should stop immediately."
Some 500,000 Israelis live in the West Bank and Arab East Jerusalem, areas Israel captured in a 1967 war. Palestinians say Jewish settlements, deemed illegal by the World Court, would deny them a viable and contiguous state.
Western officials said the United States was moving in the direction of making allowances so Israel could finish off at least some existing projects which are close to completion.
Israel estimates 2,500 units are in the process of being built, but under U.S. pressure, Netanyahu has pledged not to build any new settlements in the West Bank.
(Writing by Joseph Nasr and Allyn Fisher-Ilan; Editing by Sophie Hares)