Israeli Prime Minister Benjamin Netanyahu is set to unveil a plan to expand illegal West Bank settlements before announcing what his administration says is a reduction of construction.

The plan will likely include the construction of 500 new homes for settlers, in addition to the continuation of 2,500 housing units already under construction.

After declaring the new construction, Netanyahu is expected to announce an agreement with the United States to slow, but not freeze settlement expansion. The announcement could be made when US Special Envoy George Mitchell visits Israel later this week.

The US has been pressing Netanyahu for a total freeze on the expansion of settlements, which are illegal under international law, and universally seen as an obstacle to renewed peace negotiations with the Palestinian leadership.

Netanyahu met on Friday and Saturday with hard-line members of his own Likud party, who are opposed even to the limited curbs Netanyahu plans to apply to settlement building.

Providing a glimpse of the expected “deal” with the US, Israeli daily Haaretz reported on Sunday that, in his meetings with lawmakers, Netanyahu did not use the word "moratorium" or "freeze," opting instead to describe the proposed measure as "reducing the scale of construction."

Netanyahu has also said in the past that he will not freeze settlements in East Jerusalem, the Palestinian capital, and will exempt construction he says is need to continue “normal life” in the settlements.

Netanyahu first leaked his plan to expand settlements to the media on Friday, setting off a wave of diplomatic criticism. The Palestinian Authority also rejected this announcement. President Mahmoud Abbas said only a total freeze would be sufficient to re-start negotiations.

European Union foreign ministers, meeting in Stockholm on Friday, criticized the decision in a statement by Javier Solana, the outgoing EU foreign policy chief.

"The position of the European Union is well known. All settlement activities must stop," Solana was quoted as saying.

British Foreign Minister David Milliband also described the settlements as "illegal" and as "posing an obstacle to the peace process."

The White House also criticized the decision on Friday. "We regret the reports of Israel's plans to approve additional settlement construction," a White House statement said. "Continued settlement activity is inconsistent with Israel's commitment under the road map."

The White House added that the administration of President Barack Obama "does not accept the legitimacy of continued settlement expansion and we urge that it stop. We are working to create a climate in which negotiations can take place, and such actions make it harder to create such a climate."

In response to a reporter's question, the White House spokesman said that the US had been informed of Netanyahu's intention to proceed with new construction in the West Bank.