Barack Obama chose his battleground carefully.

Americans may seem to instinctively support what they regard as plucky little Israel besieged by terrorism, and Congress may still be the Jewish state's best political shield. But even in the US there are not many who are prepared to publicly defend the ever-expanding Jewish colonies annexing chunks of the West Bank and sealing off East Jerusalem from the rest of the occupied territories as Israel seeks to put its control of the city beyond negotiation.

So when Obama laid down a marker to Binyamin Netanyahu in demanding a complete end to settlement construction at a testy meeting in Washington last month, he put the Israeli prime minister on the spot.

Israel has endorsed the 2003 US "road map" to peace with its requirement for a total freeze on settlement expansion.

But successive governments in Jerusalem are used to American administrations giving a nod and a wink to the endless rise of the uniform white concrete settler homes with red roofs on the West Bank that are instantly distinguishable from ramshackle construction of Palestinian towns and villages.

Bill Clinton and George Bush paid lip service to ending settlement construction but tacitly agreed to the caveats that allow it to go on, including what the Israelis call "natural growth" (the construction of homes for the offspring of Jewish settlers who are deemed to have the right to live up the road from their parents while no such privilege is afforded to Arabs in Jerusalem who are forced out by a housing shortage in Palestinian areas).

When they wanted to look tough on the Israelis, US administrations extracted promises that they would dismantle the 120 or more "outposts", the rudimentary hilltop settlements that are illegal even under Israeli law.

But they rarely came down and the military was frequently complicit in helping to get them up in the first place.

The outposts were all too often agents of expansion, leapfrogging across the hilltops to claim land in the name of the Jewish state or conjoining with existing settlements and so allowing the Israeli military to seize the land in between in the name of security.

But now Israel confronts a president who may actually mean what he says amid a quiet recognition among some in Washington that the principal obstacle to a two-state solution is not Hamas or terrorism or Palestinian hostility but the long-established Israeli strategy of loudly declaring an undying commitment to peace while seeks to secure as much territory as possible and limit the sovereignty of a Palestinian state.

Obama has described the conflict as "constant sore" that "infect(s) all of our foreign policy". His officials have said that he intends to be "forceful" in pressing the parties toward a solution. The implication is that Israel will not be allowed to use obstructionism as a de facto veto, a sharp difference in policy.

Americans dealing with the Israelis say they detect a growing sense of alarm in Jerusalem as it dawns on the Israeli leadership that Obama intends to stand firm on the settlement freeze, not because he will necessarily get it but because he sees it as a test of Netanyahu's sincerity and the means to lever significant concessions from the Jewish state as part of a broader strategy to try and force a peace deal.

Daniel Levy, a former adviser to the left wing Israeli cabinet minister, Yossi Beilin, said Jerusalem was not prepared for the shift in policy.

"Israelis have been surprised to the extent that the administration has held the line on this, and the extent to which there is unity on this," said Levy who now works with a pro-Israeli peace group in Washington.

"The settlement freeze issue is the wedge issue. The administration's public position is that settlements undermine confidence in the two-state solution. [Obama's Middle East envoy George] Mitchell was clear about this in his report eight years ago, that there has to be a settlement freeze. This is an issue where Obama can hold a line with Congress, with public opinion."

Netanyahu's concern is evident. He has rejected a total freeze on settlement construction but knows that he cannot put too much strain on the relationship with the US. His last stint as prime minister ended a decade ago in part because he soured dealings with Washington to the alarm of many ordinary Israelis who see the US as their country's principal protection against a hostile world.

So he bowed to Obama's demand for a public acknowledgement that there must be a Palestinian state, albeit with caveats, and for an easing of the military controls over life in the West Bank. But the administration refused to soften its line on the settlements.

This week, Netanyahu dispatched his defence minister and leader of the Labour party, Ehud Barak, to mollify Washington.

Barak was a good choice. The Labour party has long projected itself as the party of peace, even if it was also the party that founded and vigorously pushed the settlement project.

Levy noted that, as prime minister nearly a decade ago, Barak tentatively offered to give up most of the settlements as part of peace agreement with the Palestinians even if he didn't follow through.

"Netanyahu is using Barak because to the uninitiated at least Barak can come here and say: I'm the leader of the peace party, I'm prepared to give everything, and its good that you've put pressure because it helps move Netanyahu and the right wingers closer toward compromise. But now it's gotten to be counterproductive, you have to stop," said Levy.

Barak arrived armed with a classic Israeli compromise that offered to put off any new building for three months but insisted that what has begun must continue and that the freeze would not apply to East Jerusalem. Israeli officials were talking up the proposal as a great sacrifice and hugely significant diplomatic initiative in the days before Barak arrived in New York.

But the Americans still said no. The US secretary of state, Hillary Clinton, made it clear immediately beforehand that Washington wants a total halt to settlement construction.

Special envoy Mitchell reiterated that position at the four-hour meeting with Barak. US officials told reporters afterwards that there was no shift in Washington's position and that Obama had not authorised any room for negotiation.

Barak was left trying to put the best gloss on a failed mission.

"I don't think we are stuck, I don't think we are stuck now. We are continuing talks on a wide variety of subjects, to clarify things and reach understandings," he said. "The talks were positive and in a good atmosphere, even though there are still differences."

While Barak was busy projecting himself as the moderate face of the Israeli government, his own track record as the country's defence minister responsible for the Jewish settlements had not gone unnoticed.

He assured the Americans that Israel is limiting construction to within the boundaries of existing settlements and that no new colonies are being established. But last year Barak approved the conversion of a former military post in the Jordan valley, an area of strategic importance in any peace agreement, into a new settlement called Maskiyot.

The government contends that as it was an army base it cannot be considered a new settlement but the intent is clear: to solidify a permanent Israeli presence in the Jordan valley that is part of a strategy to encircle a future Palestinian state.

Barak also approved the first new construction in years on a Jewish settlement in the heart of Hebron where thousands of Palestinians have effectively been ethnically cleansed from the centre of the city to make way for a few hundred Jewish settlers. Israeli peace activists described the decision as "reckless and irresponsible" given the incendiary nature of Jewish settlement in the city.

The defence minister is also in the process of approving a new settlement near Hebron. This time officials maintain that the settlement of Sansana is not new but a neighbourhood of an existing colony, Eshkolot, that is 2.5 miles away.

Barak has approved construction in dozens of other settlements including some of those built on expropriated Arab land. In one case, the government argues that it is bound by the decision of a previous administration.
Akiva Eldar, a columnist in the Israeli newspaper Ha'aretz, pointed out the danger for the US in accepting that argument.

"If the decisions of previous governments to expand settlements or to build new ones pave the way for the infusion of ever more settlers into the [occupied] territories, there is no point to the commitment to freeze construction and to haggle over 'natural growth'. Such earlier decisions allow Israel to place a settlement under any tree located in the West Bank and East Jerusalem," he wrote.

Realising he wasn't going to get the US administration to agree that the construction boom could continue, Barak made another plea at his meeting with Mitchell. Why, he asked, is the administration so hung up on the settlements? They are not an obstacle to peace, he contended, because it is widely assumed that all the major colonies will be incorporated inside Israel's final borders. It's an argument being rehearsed on the opinion pages of the American press by Israel's sympathisers.

Levy says that may yet prove to be why Obama is pushing the issue.

"If the Israelis can't step up to the plate on settlement issues then Obama can say let's talk about borders, and that's the real issue," he said.

Israel has consistently sought to avoid discussion about final borders because it is still trying to push them as far from the 1967 Green Line as possible, most recently by using the vast steel and concrete "security" barrier through the West Bank to place new areas of land directly under Israeli administration.

The Americans are also aware that in their divided and weakened state the Palestinians are not in a position to deliver very much and that launching fresh negotiations toward establishing a Palestinian state will require bringing Arab governments on board. To do that will probably require a significant shift in Israeli policy, such as a settlement freeze.

What is clear is that Washington sees the settlement issue as one of intent.

In the years after Israel signed the Oslo peace accords in 1993, which were supposed to result in an independent Palestinian state, it stepped up settlement construction, doubling the number of Israelis living in the West Bank and annexing fresh swathes of land - all of which raised serious doubts about its commitment to the establishment of a viable Palestine.

Even Ariel Sharon's intentionally dramatic removal of Jewish settlers from Gaza four years ago provided cover for the placement of an even larger number of Israelis in the West Bank.

The Israelis are used to playing for time. Netanyahu's friends in the well-organised and well-funded Washington lobby will be mobilising to pressure members of Congress.

Obama will be wary of expending political support in Congress that he needs to carry through dramatic healthcare reform. There are plenty of potential pitfalls from Iran to Hamas.

But Netanyahu may finally have met an American president who is not prepared to play Israel's game.