Israeli rightist sees long dispute with U.S

A security guard walks in front of the Shepherd's Hotel, where residential housing is planned, in East Jerusalem July 19, 2009.

JERUSALEM (Reuters) - Israel stands ready to risk a protracted rift with Washington over U.S. demands to stop construction in East Jerusalem and other settlements, a key right-wing Israeli lawmaker said in an interview on Monday.

Tzipi Hotovely of Prime Minister Benjamin Netanyahu's Likud party said the Israeli leader could face dissent from within the ranks of his own faction if he backed down and agreed to even a partial freeze in settlement building in occupied land.

"That wouldn't be satisfactory. We were elected to continue to build in Judea and Samaria, not in order to freeze it," Hotovely told Reuters, using biblical names for land Israel captured in a 1967 war which Palestinians seek for a state.

"There's a real debate going on," Hotovely, who sits on a legislative panel that reviews foreign policy, said of Israel's rejection of President Barack Obama's calls for a settlement freeze to renew peace talks.

Palestinians seek east Jerusalem as the capital of their own future state. They also object to any expansion of settlements in the West Bank which they say is fragmenting the territory on which the state would be established.

Hotovely said Washington had crossed "a very clear red line" in urging suspension of a construction project for about 20 homes in East Jerusalem. The White House, asked if it had approached Israel on the specific project, has declined comment.

Israelis across party lines voiced agreement with Netanyahu for telling his cabinet on Sunday in televised remarks, "We cannot accept the idea that Jews will not have the right to live and buy (homes) anywhere in Jerusalem."

ANNEXATION

Israel regards Jerusalem as its indivisible capital, including the eastern sector it captured along with the West Bank in 1967. Israel subsequently annexed east Jerusalem, in a move not recognized internationally.

Hotovely said she saw no easy solution to the policy friction with Washington, and suggested any compromise could create a domestic political crisis for Netanyahu's fractious coalition of bickering nationalist and religious allies.

"Perhaps for a time the Israeli government and the U.S. administration won't see eye to eye on this specific issue of settlements. That's fine," Hotovely said.

"What country in the world would accept dictates about its capital city? That's really a blow to the heart of any nation," added Hotovely, a 30-year-old lawyer, Israel's youngest lawmaker, and an outspoken critic of Western-backed efforts to establish a Palestinian state.

Netanyahu won an election in February and took office a month later, becoming prime minister for a second time after having held the job in the late 1990's.