Construction at Gilo settlementPalestinians say the move makes little difference in practice
The Palestinian Authority has reacted negatively to Israel's offer to temporarily restrict construction in Jewish settlements in the West Bank.
Chief negotiator Sayeb Erekat said any settlement freeze that did not include East Jerusalem was unacceptable.
Israeli Prime Minister Benjamin Netanyahu said the 10-month restriction was part of a policy he hoped would give a new impetus to peace talks.
The US said Israel's decision would help "move forward" peace efforts.
"We believe that through good-faith negotiations the parties can mutually agree on an outcome which ends the conflict and reconciles the Palestinian goal of an independent and viable state based on the 1967 lines, with agreed swaps, and the Israeli goal of a Jewish state with secure and recognised borders," US Secretary of State Hillary Clinton said in a statement.
US Middle East envoy George Mitchell said the move did not represent a settlement construction freeze, but was nevertheless "significant" and might have "a substantial impact on the ground".
"We will not halt existing construction and we will continue to build synagogues, schools, kindergartens and public buildings essential for normal life"
Benjamin Netanyahu
Israeli prime minister
'Deception'
But Mr Erekat said there was nothing new in the offer, adding that Israel would continue building 3,000 housing units in the West Bank it had just started.
"This is not a moratorium," he said, quoted by the Associated Press. "Unfortunately, we hoped he would commit to a real settlement freeze so we can resume negotiations and he had a choice between settlements and peace and he chose settlements."
Senior Palestinian MP Mustafa Barghouti went further.
"What Netanyahu announced today is one of his biggest attempts at deception in his history," he said.
"In reality he will continue settlement construction in the same pace as before.
WEST BANK SETTLEMENTS
Construction of settlements began in 1967, shortly after the Middle East War
Some 280,000 Israelis now live in the 121 officially-recognised settlements in the West Bank
A further 190,000 Israelis live in settlements in Palestinian East Jerusalem
The largest West Bank settlement is Maale Adumim, where more than 30,000 people were living in 2005
There are a further 102 unauthorised outposts in the West Bank which are not officially recognised by Israel
The population of West Bank settlements has been growing at a rate of 5-6% since 2001
Source: Peace Now
Challenge of Israeli settlements
In a televised statement earlier, Mr Netanyahu said his security cabinet had earlier authorised the "policy of restraint regarding settlements which will include the suspension of new permits and new construction in [the West Bank] for a period of 10 months".
"This is a far-reaching and painful step," he said.
Mr Netanyahu said the restrictions would apply only to the construction of new homes, and that any work currently under way would continue.
"We will not halt existing construction and we will continue to build synagogues, schools, kindergartens and public buildings essential for normal life," he added.
He also stressed that the policy did not apply to Jerusalem, saying: "We do not put any restrictions on building in our sovereign capital."
The BBC's Katya Adler in Jerusalem says many will see Wednesday's announcement as a cynical move to appease the US.
Israeli PM Benjamin Netanyahu and US envoy George Mitchell on the plans
The row over settlements has dogged US President Barack Obama's attempts to restart peace talks between Israel and the Palestinians for months.
Israel previously pledged to freeze all settlement activity under the 2003 Middle East peace plan known as the roadmap. The plan also called for Palestinians to dismantle militant groups.
However, the administration of former US President George W Bush did not pressure it to curtail building in settlement blocs it was widely expected to keep in an eventual deal.
Mr Obama's administration began by pressing for a total freeze, but softened its language in the face of refusals from Mr Netanyahu and his right-leaning government.
Nearly 500,000 Jews live in more than 100 settlements built on occupied territory in the West Bank and East Jerusalem.
A number of UN Security Council resolutions have condemned settlement building in the occupied West Bank, including East Jerusalem, as illegal - although Israel disputes this.
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