"This is not an easy step, and it is painful," Netanyahu said of the freeze during a prime-time televised news conference. "We are taking it in order to encourage the resumption of negotiations to achieve peace with our Palestinian neighbors."
Netanyahu stressed that Jerusalem was not included in the announcement and that building there would continue. Israeli annexed East Jerusalem in 1967, while Palestinians say it must be the future capital of a Palestinian state.
"We do not put any restrictions on building in our sovereign capital," Netanyahu said.
Palestinians said Netanyahu's decision to exclude Jerusalem from the freeze makes Netanyahu's offer a non-starter.
"What has changed to make something that was not acceptable a week or 10 days ago [acceptable now]?," Palestinian Prime Minister Salam Fayyad said to reporters. "The exclusion of Jerusalem is a very serious problem for us."
AP / AFP / Getty Images
Palestinian Marwan Barghouti and Israeli soldier Gilad Shalit are key figures in a possible prisoner exchange that has been on the cusp of agreement this week.
Netanyahu was also attacked by hardline critics in Israel.
"It can't be possible that Netanyahu is spitting in the faces of those to whom he promised less than a year ago that he would constitute an alternative to [former Prime Minister Ariel] Sharon's policy of uprooting [settlements]," said Yaakov Katz, the chairman of the National Union Party.
Minutes after Netanyahu spoke in Jerusalem, U.S. special Mideast envoy George Mitchell congratulated Israel.
"While they fall short of a full freeze, we believe that the steps announced by the prime minister are significant and could have substantial impact on the ground," Mitchell said. "For the first time ever, an Israeli government will stop housing approvals and all new construction of housing units in West Bank settlements. That's a positive development."
The settlement freeze didn't come as a complete surprise, but the timing of Netanyahu's announcement did raise questions. Gerald Steinberg, a professor of political science at Bar Ilan University, linked it to a possible prisoner exchange deal with the Islamist Hamas movement.
A conclusion of that long-sought deal seemed almost certain Tuesday, but talks hit a snag Wednesday over the list of hundreds of Palestinians Israel would release in exchange for Sgt. Gilad Shalit, who was captured by Hamas forces more than three years ago. A senior Hamas leader in Gaza accused Israel of dragging its feet, but both sides said the indirect negotiations are continuing.
If the deal does go through, it will give Hamas a huge boost in popular support in the West Bank as well as Gaza. Israeli analysts say Netanyahu's settlement freeze is a bid to give Palestinian president Mahoud Abbas some political capital as well.
"The timing is designed to coincide with or precede a deal for Shalit," Steinberg said. "Neither the Israelis nor the Americans want a prisoner swap without showing something substantive for the peace process. They don't want it to be just a win for Hamas."
Among the prisoners whose release Hamas is seeking is Marwan Barghouti, a leader of Fatah and a possible successor to Abbas, who has said he won't run in the next Palestinian elections.
"Hamas wants to be seen as the leader of all Palestinians," said Yossi Alpher, a former Mossad official and the editor of an Israeli-Palestinian Web site. "And Barghouti has been active in trying to bridge the gaps between Fatah and Hamas."
Alpher said that any prisoner exchange will strengthen Hamas, which rules Gaza, at the expense of the more moderate Fatah. The deal is expected to include about 1,000 Palestinian prisoners from the total 11,000 in Israeli jail. It is expected to pass the Israeli cabinet despite the protests of bereaved families whose loved ones were killed in Hamas attacks.
Shalit, who is now 23, has captured Israel's imagination. His family has spoken often to the Israeli media, and his supporters have erected a protest tent nearby. Last month, Hamas released the first video of Shalit since he was captured. Looking pale and thin, Shalit said his captors were treating him well but urged Israel to do more for his release.
The prisoner exchange would likely have far-reaching effects. Israeli officials have said they would lift the siege imposed on Gaza in 2007, designed to pressure Hamas into freeing Shalit. Goods would flow freely into Gaza, and reconstruction of thousands of homes destroyed in fighting between Israel and Hamas last winter could begin.
The prisoner exchange could also lead to new talks for reconciliation between Hamas and Fatah, a precondition for the resumption of negotiations between Israel and the Palestinians.
