Israel will not agree to U.S. demands to freeze all settlement activity in the West Bank, the AFP reported an official close to Prime Minister Benjamin Netanyahu as saying.

"I want to say in a crystal clear manner that the current Israeli government will not accept in any fashion that legal settlement activity in Judea and Samaria be frozen," Transport Minister Yisrael Katz said, using the Israeli term for the West Bank. "The government will defend the vital interests of the state of Israel."

It was the first high-level reaction to President Obama's call Thursday during a meeting with Palestinian President Mahmoud Abbas that Israel stop settlement activity, a key hurdle in Mideast peace talks. 

Prime Minister Benjamin Netanyahu had said last Sunday Israel will continue to build homes in existing West Bank settlements, but would not allow any new settlements to be created.

"We will not build new settlements," he said, according to remarks released by his office. "But it is not fair not to provide a solution to natural growth."

Obama met Thursday with Abbas and challenged Israelis and Palestinians to be fair brokers in the quest for peace, calling on Israel to stop settlement construction in the West Bank.

"We can't continue with the drift, with the increased fear and resentment on both sides, the sense of hopelessness around the situation that we've seen for many years now," Obama said, referring to the idea of Palestinians and Israelis living peacefully as neighbors. "We need to get this thing back on track."

"I am confident that we can move this process forward," Obama said after meeting with Abbas at the White House. The president said that means both sides must "meet the obligations that they've already committed to" -- an element of the peace effort that has proved elusive for years.

Abbas told The Associated Press after the session with Obama that no meetings with Israeli Prime Minister Benjamin Netanyahu are on the horizon. He said there are no preconditions for such a meeting but "obligations" on Israel through the so-called road map for ending the Israeli-Palestinian conflict.

Abbas said he is meeting his commitments under the road map and that Israel should do the same. He cited continued settlement construction as a commitment Israel is not meeting.

The Associated Press contributed to this report.