Netanyahu "is demanding that US President Barack Obama reaffirm the commitments that were given by his predecessor George W. Bush to then Prime Minister Ariel Sharon," the mass circulation Yediot Aharonot daily said. "First and foremost among these, the American support for Israeli annexation of the settlement blocs as part of any final status arrangement," the daily quoted Netanyahu as saying.

To convince his ministers to accept a moratorium on new construction in West Bank settlements outside annexed Arab East Jerusalem, Netanyahu is "trying to extract from the Americans unambiguous commitments," the newspaper said.

Obama's administration "believes that in any final status arrangement Israel must withdraw to the 1967 borderline and accept the Palestinian position that annexation of settlement blocs to Israel will take place only ... as part of a territory swap," it added.

In the 2004 letter, Bush said: "In light of new realities on the ground, including already existing major Israeli populations centers, it is unrealistic to expect that the outcome of final status negotiations will be a full and complete return to the armistice lines of 1949."

Israeli leaders interpreted the letter as US endorsement for the annexation of the larger settlement blocs in the West Bank in any peace deal but Obama's administration has refused to be bound by their understanding.

Israel's resumption of settlement expansion last month after a 10-month moratorium triggered a Palestinian threat to walk out of peace talks barely a month old and drew EU, UN and US criticism.

A top Palestinian negotiator said Thursday that the Palestinians have accepted a US proposal calling on Israel to extend a West Bank settlement slowdown for another two months.

Nabil Shaath said the Palestinians accept such a limited extension provided the two sides can reach agreement on the borders between Israel and a future Palestine in those two months. It is unclear whether Israel's pro-settler government will agree.

If there's no deal, Shaath said the settlement freeze must be extended.

Meanwhile, at least six Palestinians were wounded in a series of Israeli raids on the Hamas-ruled Gaza Strip on Thursday, Palestinian medics and Hamas security officials said.

Two people were wounded in an airstrike Thursday afternoon on a car in central Gaza, medics said, while another four people were wounded earlier in overnight raids in Gaza City and central Gaza.

It was not immediately clear who the target of the latest attack was and an Israeli military spokeswoman would not immediately confirm the strike on the vehicle.

The military had earlier said it had hit two "targets" in response to a rocket fired from Gaza on Wednesday that caused no casualties.

Army radio said that another rocket fired at Israel fell short and landed inside the strip.

The number of rocket attacks declined sharply following Israel's massive 22-day war on Gaza, which ended in January 2009, and the Hamas movement which controls the enclave has taken steps to rein in the attacks, believed to be the work of rival factions.

However, since the start of this year Palestinians have fired more than 160 rockets or mortar rounds into southern Israel, according to the military.