Middle East envoy George Mitchell reportedly discussing deal to allow completion of homes currently under construction

Barack Obama has dispatched a clutch of senior American officials to Jerusalem to press his demand for an end to Jewish settlement construction and move along a diplomatic process aimed at imposing a blueprint for peace if negotiations fail.

Obama’s Middle East envoy, George Mitchell, is reportedly discussing a deal with the Israeli leadership that would allow the completion of several thousand homes for Jewish settlers already under construction but impose a total halt to building once they are complete. Such an agreement would amount to a concession by Obama, who laid down an immediate and complete freeze on construction as a marker of a more interventionist policy at a testy meeting with the Israeli prime minister, Binyamin Netanyahu, in Washington in May.

But American sources close to the negotiations say that getting Netanyahu to agree that no new construction can begin is an important step toward forcing a new diplomatic process that is no longer hostage to Israeli intransigence.

The diplomatic moves came as the Israeli military announced that the number of Jewish settlers on the West Bank has risen above 300,000 for the first time with about 200,000 more in East Jerusalem. About 2.5 million Palestinians live in the same territory.

The US defence secretary, Robert Gates, is also in Israel as part of the drive to secure a comprehensive Middle East peace agreement.

The aim is to win a regional consensus on Iran’s nuclear programme but also reassure the Israelis that Washington has not gone soft on the issue in an effort to dampen Israeli threats of military action. Gates said he did not believe that Barack Obama’s timetable would “increase the risks to anybody” — a reference to Israeli concerns that its nuclear monopoly may soon be challenged by the Islamic republic.

Israel has hinted at a pre-emptive attack on Iran should it deem diplomacy to be at a dead end. Prime minister Benjamin Netanyahu’s office said today that he reaffirmed to Gates “the need to use all means to prevent Iran from obtaining nuclear military capability”.

While the Obama administration continues to say that negotiation is the way forward, Gates today said that the promise of talks with Iran “is not an open-ended offer”.

Two other US officials are also visiting Jerusalem as part of the diplomatic push – Obama’s national security adviser, James Jones, who in an Israeli diplomatic memo was reported to have told European officials that the administration will take a hard line with the Israelis, and Dennis Ross, Bill Clinton’s special envoy to the peace process who was brought back to focus on Iran.

The immediate effort is around a settlement freeze.

Tel Aviv newspapers report that Israeli officials say that talks are moving toward a deal in which the Americans will permit the completion of 700 buildings with nearly 2,500 new homes in them that are already well under construction, mostly in two settlements close to the green line which are likely to fall inside the Jewish state’s border under a final agreement.

But as part of the agreement, the US intends to rigorously monitor the building work to ensure that the Israelis do not push it beyond the agreed limits.

The Americans are acutely aware that in the past Israel has agreed to contain settlement expansion and then promptly broken its word. This time the US is insisting on detailed plans of what would amount to a final bout of construction before a total halt to building comes in to force.

Mitchell is also pressuring Arab countries for gestures in response to an Israeli settlement freeze such as trade delegations or overflight rights.

Mitchell said at a press conference that the disagreement over settlement construction is a “discussion among friends” but it is also a test of Obama’s authority.

One former official who monitors the negotiations closely said that the US is prepared to give ground because it sees a settlement freeze as an important step toward reviving Israeli-Palestinian talks.

There is no great expectation in Washington that talks will go anywhere but that they should have been tried and failed once again will help smooth the diplomatic path for the administration’s plan to force its own proposals on to the table later this year which could force Israel to make significant territorial concessions.

The Palestinians have been insistent that there can be no talks without a settlement freeze.

That still leaves the question of Jerusalem as a major obstacle.

Netanyahu very forthrightly spurned US demands to block a new settlement project in the occupied east of the city where an American millionaire plans to bulldoze an old hotel and build Jewish-only housing.

The prime minister said that Israel will not be dictated to on where its citizens can live in what it says is its eternal and indivisible capital. Netanyahu later said that all of Jerusalem will remain under Israeli jurisdiction even after a peace settlement.

Some American officials think Netanyahu may be overplaying his hand because if he puts himself in a position where he is unable to give ground on Jerusalem, that will require others to lay down Israel’s final borders.