National security adviser Yaakov Amidror has argued that the settlement issue has led to Israel's deteriorating international standing, Haaretz said.
"Construction in the settlements has become a diplomatic problem and is causing Israel to lose support even among its friends in the West," sources told Haaretz Amidror said in closed-door discussions recently.
Amidror opposed building new housing units in West Bank settlements, a decision that came in response to September's upgrade of Palestinians' status at the United Nations. He also objected to a decision to move forward with the E1 corridor that links Jerusalem to Ma'aleh Adumim, Haaretz said.
Amidror and Yitzhak Molcho, Netanyahu's envoy for peace talks, and other advisers haven't ruled out the option of imposing another construction freeze on isolated West Bank settlements, conditioning such a move to the Palestinians returning to negotiations.
However, an unnamed government official from the prime minister's office swiftly denied Netanyahu would consider a settlement construction freeze and said Netanyahu hasn't changed his settlement policy, Israel Radio said.
Amidror and Molcho are travel to Washington next week to coordinate an upcoming visit of U.S. President Barack Obama to Israel.