JERUSALEM - The United States doubts a policy speech Israeli Prime Minister Benjamin Netanyahu is to deliver next week will satisfy President Barack Obama's peacemaking demands, Western diplomats said on Thursday.

Netanyahu's refusal to commit to a building freeze in Jewish settlements in the occupied West Bank and to endorse the goal of establishing a Palestinian state -- both set out in a 2003 peace road map -- has opened a rare rift in U.S.-Israeli relations.

Signaling the direction Netanyahu could take when he delivers his policy speech on Sunday, Israeli President Shimon Peres raised in a meeting with a European envoy the possibility of an interim Palestinian state with provisional borders.

That option, which has been rejected by the Palestinians, is part of the road map, a plan backed by Washington.

Briefing their counterparts in the Quartet of Middle East mediators after talks with Netanyahu, U.S. officials voiced skepticism he would make the clear, far-reaching and tangible commitments on settlements or statehood that Obama has sought, participants said on condition of anonymity.

The Americans are not satisfied with what they have been told, a senior Western diplomat said.

Netanyahu wants to negotiate a compromise whereby Washington would permit at least some natural growth, or construction within existing settlements to accommodate growing families, but, so far, Obama has refused to back down, diplomats said.

They are saying things like, 'adding a room in a house is not natural growth,' another Western diplomat said of Netanyahu's exchanges with Obama's Middle East envoy, George Mitchell, in Jerusalem this week.

ROAD MAP

Israeli officials said Netanyahu had not finalized his speech but it would focus on the road map, which envisages creation of a Palestinian state alongside Israel. They said he would urge Arab countries to talk peace with Israel.

Israeli officials and several Western diplomats said it was unclear whether Netanyahu would use the address to endorse explicitly the U.S.-backed goal of statehood.

A senior Western diplomat said Netanyahu was likely to stop short of backing the creation of a state and promise instead to work toward a vague goal of Palestinian self-government.

To sidestep the issue, Netanyahu could implicitly accept a two-state solution by stressing his government's acceptance of the road map as part of its pledge to honor diplomatic agreements signed by previous Israeli administrations.

But diplomats said this would not satisfy Washington.

Under the road map, a provisional Palestinian state would have temporary borders and attributes of sovereignty ... as a way station to a permanent status settlement.

But Palestinian negotiator Saeb Erekat said that was a non-starter.

We have already told the Quartet that this is not an option for us, Erekat said about a provisional state. We don't need any more interim periods. We need to focus on the end game.

Netanyahu has offered immediate talks with Palestinian President Mahmoud Abbas and Arab leaders but has not said what they would cover. Abbas has said negotiations would be useless unless Netanyahu committed to statehood and a settlement freeze.

Netanyahu has said any Palestinian entity must be demilitarized and have limited powers of sovereignty. Halting construction in settlements or opening talks on territorial issues could bring down his right-leaning government.

It's 'yes or no', Erekat said. Accept the two-state solution, 'yes or no', a settlement freeze, 'yes or no', permanent-status negotiations, 'yes or no'.

(Additional reporting by Jeffrey Heller; Editing by Diana Abdallah)

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