Palestinians, backed by the Arab League, accused the United States on Sunday of destroying the Middle East peace process after Washington signalled it could accept some growth of Israeli settlements.
Until now, the United States had demanded a freeze on building all Jewish settlements on land occupied in the 1967 Middle East war. The communities are seen as illegal by most of the world, though Israel disputes this.
But the Bush administration signalled flexibility on Saturday on some limited growth in West Bank settlements to help embattled Israeli Prime Minister Ariel Sharon as he tries to get a plan for withdrawal from occupied Gaza past his far right.
"I do not believe that America says now that settlements can be expanded. This thwarts and destroys the peace process," Palestinian Prime Minister Ahmed Qurie told reporters.
Palestinians, who fear uprooting the Gaza settlers is a cover for strengthening Israel's hold on bigger West Bank enclaves, said the United States was tearing up its own peace "road map" - a blueprint for a Palestinian state that has been stalled by violence.
"For the United States to take such positions ... can only damage the peace process, if it exists, and damage the whole situation and make it more difficult," Arab League Secretary-General Amr Moussa told reporters in Cairo.
A senior US administration official, commenting on Israel's plan to build 1,000 more settler homes, said on Saturday: "There is some flexibility there".
While the White House denied any official change in the US stance, an official said efforts were under way to clarify with the Israelis what "settlement activity" means.
Based on this new understanding, officials said Washington could agree to new construction provided it did not take place outside the boundaries of existing settlements.
A senior Israeli source said there was a clear understanding that the United States was trying to help Sharon push through his plan for "disengagement" from nearly four years of conflict with the Palestinians.
PALESTINIANS GATHER IN GAZA:
GAZA CITY: Around 4,000 people, a number of them armed, gathered in Gaza City late Sunday to show their support for Palestinian prisoners staging a mass hunger strike in Israeli jails.
Waving Palestinian flags and banners calling for the prisoners to be released, they rallied in the town centre for the protest organised by Palestinian leader Yasser Arafat's mainstream Fatah movement, an AFP correspondent said.