It has emerged that Israeli Prime Minister Ariel Sharon has given the go-ahead for 600 new homes in the largest Jewish settlement in the West Bank.
Maale Adoumin, the largest settlement in the West Bank, is home to 28,000 settlers
Mr Sharon and Defence Minister Shaul Mofaz agreed the plan two months ago but it has only now been made public.
The new homes are to be built in Maale Adoumin, close to Jerusalem. It is already home to 28,000 Jewish settlers.
Israel has committed itself to freezing settlement activity under the international "roadmap" peace plan.
Under the terms of the stalled peace plan, the Palestinians are obliged to crack down on militant attacks against Israel.
All settlements in the West Bank and Gaza are considered illegal under international law.
'Incompatible with roadmap'
The BBC's Katya Adler in Jerusalem says Palestinians fear that Israel's plan to pull out of Gaza next year could mean Mr Sharon plans to bolster Jewish settlements in the West Bank instead.
Our correspondent reports that US officials say the building plans appear incompatible with the peace plan.
400,000 settlers in the West Bank and Gaza
130 settlements authorised by Israeli governments
About 100 unauthorised settlements, 60 built during Ariel Sharon's government
Israel spends about $500m on settlements annually - excluding security
Sources: Peace Now and Haaretz newspaper
A spokesman at the US embassy in Tel Aviv said Ambassador Dan Kurtzer would examine the case as soon as he returned from a trip abroad.
Israel plans to pull all its 7,000 settlers from Gaza and the troops that protect them, while keeping control of Gaza's borders, coastline and airspace. Four West Bank settlements are also to be evacuated.