The terms:

Israel will not maintain a freeze on new settlement construction.

In the next three years, the prime minister's office and defense ministry will grant permits for some hundreds of building projects appearing on an agreed list.

A joint US-Israeli team is now working on the final list.

Obama will stop demanding a total freeze.

The two governments agreed to continue building settlements in Jerusalem, including the eastern side.

The two parties also agreed that the US-Israel understanding on the settlements and their expansion will not be published or brought before the government in Jerusalem for endorsement.

Defense minister Ehud Barak will be the only minister with full knowledge of its contents and in Washington, only Vice President Joe Biden, White House chief of staff Rahm Emanuel and Mitchell - seven individuals in all in both capitals.

Netanyahu and Mitchell will finally approve the draft when they meet in London on Aug. 26, 2009.