“Israel will not freeze natural growth and will not suffocate the life of 300,000 Israelis who live in settlements in all legality,” Deputy Foreign Minister Danny Ayalon told public radio.
The international community considers all settlements in the West Bank and east Jerusalem illegal, saying they violate international law under which an occupying power cannot transfer part of its population to the land it occupies.
The US administration is pressing Israel to freeze all construction activity in the settlements, which are seen as a major hurdle in efforts to reach a peace deal with the Palestinians.
Ayalon made it clear he did not believe the Palestinians were willing to make any concessions.
“One cannot demand immediate and complete payment by Israel if the other side is not willing to take the slightest step,” he said.
Israeli media has said hawkish Prime Minister Benjamin Netanyahu was willing to consider a three-month construction freeze, but would exclude east Jerusalem from the moratorium, as well as the 2,000 to 3,200 private homes currently being built in the West Bank.