Settlements have on several occasions been a source of tension between Israel and the U.S.. President Jimmy Carter insisted that the settlements were illegal and unwise tactically, and decades after leaving office he wrote Palestine: Peace Not Apartheid. President Ronald Reagan stated that they were legal, though he considered them an obstacle to negotiations In 1991 there was a clash between the Bush administration and Israel, where the U.S. delayed a subsidized loan to pressure Israel not to proceed with the establishment of settlements for instance in the Jerusalem-Bethlehem corridor. In 2005 the United States ambassador to Israel, Dan Kurtzer, expressed U.S. support "for the retention by Israel of major Israeli population centres in the West Bank as an outcome of negotiations reflecting President Bush's statement a year earlier that a permanent peace treaty would have to reflect "demographic realities" in the West Bank. In June 2009, President Barack Obama said "The United States does not accept the legitimacy of continued Israeli settlements.
Palestinians argue that Israel has undermined the Oslo accords, and the peace process more generally, by continuing to expand the settlements after the signing of the Accords. Israel previously also had settlements in the Sinai Peninsula, but these were forcibly evacuated and destroyed as a result of the peace agreement with Egypt. Many have noted the role of private U.S. corporations and charities in funding these settlements, and the tax breaks they enjoy from the government on these 'donations.'For more information, see the article Time to Crack down on Settlement Funding," an article published by The Jerusalem Fund in Washington, DC.
Most Israeli and U.S. proposals for final agreement have also involved Israel being allowed to retain long established communities in the territories near Israel and in East Jerusalem (the majority of the settler population is near the "Green Line"), with Israel annexing the land where the communities are located. This would result in a transfer of roughly 5% of the West Bank to Israel, with the Palestinians being compensated by the transfer of a similar share of Israeli territory (i.e. territory behind the "Green Line") to the Palestinian state. Palestinians complain that this would legitimize what they see as an illegitimate land grab, and that the land offered in exchange is situated in the southern desert, whereas the areas that Israel seeks to retain are among the West Bank's most fertile areas, including major aquifers. Israel, however, sees the current "Green Line" as unacceptable from a security standpoint—Israel would have at some points no more than 17 kilometers from the border to the sea. For more details, see Proposals for a Palestinian state.
Former President George W. Bush has stated that he does not expect Israel to return entirely to pre-1967 borders, due to "new realities on the ground. One of the main compromise plans put forth by the Clinton administration would have allowed Israel to keep some settlements in the West Bank, especially those in large blocs near the pre-1967 borders of Israel. In return, Palestinians would have received some concessions of land in other parts of the country.
Both U.S. President Bill Clinton and U.K. Prime Minister Tony Blair, who played notable roles in attempts at mediation, noted the need for some territorial and diplomatic compromise on this issue, based on the validity of some of the claims of both sides.
Fayed Mustafa, Palestinian ambassador to Russia, has called on the return of Palestinian territories to Egypt and Jordan if the current talks fail.
Israeli defense Minister Ehud Barak has approved a plan that would require security commitments in exchange for a withdraw from the West Bank. Barak has also expressed readiness to cede parts of East Jerusalem to the Palestinians and put the holy sites in the city under a special regime.
On June 14, 2009, Israeli Prime Minister Benjamin Netanyahu, as an answer to U.S. President Barack Obama's speech in Cairo, delivered a speech setting out his principles for a Palestinian-Israeli peace, among others, he alleged "... we have no intention of building new settlements or of expropriating additional land for existing settlements. In March 2010, the Netanyahu government announced plans for building 1,600 housing units in Ramat Shlomo across the Green Line in East Jerusalem during U.S. Vice President Joe Biden's visit to Israel causing a diplomatic row.
On 6 September 2010, Jordanian King Abdullah II and Syrian President Bashar al-Assad said that Israel would need to withdraw from all of the lands occupied in 1967 in order to achieve peace with the Palestinians.
Bradley Burston has said that a negotiated or unilateral withdraw from most of the settlements in the West Bank is gaining traction in Israel.
In November 2010, the United States offered to "fight against efforts to delegitimize Israel" and provide extra arms to Israel in exchange for a continuation of the settlement freeze and a final peace agreement, but failed to come to an agreement with the Israelis on the exact terms.
In December 2010, the United States criticised efforts by the Palestinian Authority to impose borders for the two states through the United Nations rather than through direct negotiations between the two side In February 2011, it vetoed a draft resolution to condemn all Jewish settlements established in the occupied Palestinian territory since 1967 as illegal.
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