Prime Minister Ariel Sharon has vowed Israel will keep the main Jewish settlements in the West Bank.
His pledge comes before a trip to Washington to secure US approval for a unilateral pullout from the Gaza Strip.
Infuriated Palestinians, who want both territories for a state, said Mr Sharon's comments effectively closed the door on any deal under a peace plan to which President Bush has reaffirmed his commitment.
Mr Sharon, speaking last night at the biggest West Bank settlement, Maale Adumim, identified the settlements that will "remain under Israeli control, that will continue to grow stronger and develop".
There are some 230,000 settlers in the West Bank, home to more than two million Palestinians.
Mr Sharon repeated Israel's determination to retain Arab East Jerusalem, seized like Gaza and the West Bank in the 1967 Middle East war and then annexed in a move not recognised internationally.
"With this statement, Sharon is closing the door before any Palestinian-Israeli peace deal," said chief Palestinian negotiator Mr Saeb Erekat. "The withdrawal from Gaza cannot be exchanged for maintaining Israeli occupation in Jerusalem or in the West Bank."
Mr Sharon left for Washington early today for a White House meeting with President Bush at which Israeli sources said they expect a deal ensuring Israel would not have to cede all of the West Bank in any future peace agreement.