Israel is in the final stages of legalizing new West Bank settlements, a top official said Thursday, a violation of its commitments to the United States and to an internationally backed peace plan.

The "road map" peace plan — which envisions the formation of a Palestinian state by 2005 in the West Bank and Gaza Strip — requires Israel to remove dozens of unauthorized West Bank outposts established since March 2001 and to freeze construction at existing settlements.

But Deputy Defense Minister Zeev Boim said Thursday that Israel was in the final stages of granting "legal" status to some West Bank outposts and had also granted a contract to expand the West Bank settlement of Negohot.

Palestinian Cabinet minister Saeb Erekat said the moves undermine the road map, and called on the United States to halt the Israeli measures.

The United States said Tuesday it was deducting $289.5 million out of $9 billion in loan guarantees to Israel because of Israeli construction in the West Bank.

In the Gaza Strip, the army said two Palestinians it killed late Wednesday were unarmed, but it was possible they were part of the armed groups troops were chasing down. The two Palestinians are members of Islamic Jihad, the army said, and it is possible they dropped their weapons during the chase.

Also, a 9-year-old Palestinian boy was killed by gunfire while playing near his house in the Rafah neighborhood of Gaza on Wednesday. Palestinians said Israeli troops fired in the area. But the army said it was unaware of any shooting incidents in Rafah on Wednesday.

Israeli Prime Minister Ariel Sharon said last week he would take "unilateral steps" to ease tensions between Israel and the Palestinians should the sides fail to reach agreement. Israeli media reported Sharon was putting together a plan that would include dismantling some West Bank and Gaza Strip settlements.

Jewish settlers have been establishing unauthorized hilltop outposts since 1998 in an attempt to establish new "facts on the ground" to prevent land-for-peace agreements with the Palestinians. They have enjoyed the quiet support of hard-line Israeli governments, which have provided soldiers to guard them. As foreign minister in 1998, Sharon urged settlers to seize hilltops.

Although the government calls some of the outposts "illegal," it has allowed settlers to pave roads to the hilltop areas, which are often made up of no more than a few trailers and a handful of settlers.

"Illegal outposts were built in the past three years, this is not a secret. I am saying that some of them are towns, that the process of legalizing them is near the end, and this is the difference," Boim told Israel Army Radio.

Other outposts that are not being "legalized" will be dismantled, Boim said, adding that dozens of unauthorized outposts have been removed in the past three years. Israeli human rights groups say very few of the outposts have been dismantled, and those that have were quickly re-established.

Army Radio reported that the government was planning to remove 12 outposts, but Boim refused to confirm the number. Defense Minister Shaul Mofaz was set to hold talks Thursday about dismantling some of the unauthorized outposts.

Yediot Ahronot reported that Mofaz was expected to approve the removal of 36 outposts. The government says it has already taken down 43 outposts, a figure challenged by U.S. officials.

Despite U.S. opposition, Israel will expand and allow construction for "natural growth" purposes in existing settlements, Boim said, citing the example of Negohot, a small settlement west of Hebron.

"Negohot is a legal settlement in every way and therefore if it needs to build public buildings that are meant to serve the population there, if there is a need to expand the town, then we do these things," Boim said.

"I think the Americans understand ... they would like to freeze the issue of settlements, and there is such a clause in the road map as well, (but) the prime minister came and said, 'Look people are living there,'" Boim said, explaining that Israel always said it would allow construction in existing settlements.

Erekat said Israel always intended to make the ouposts permanent, and called the move an "outright violation" of the road map.

"These decisions must be revoked and there must be total cessation of settlement activities as specified in the road map," Erekat said. "They (Israel) have to choose between settlements and peace, and I hope they choose peace."

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