Israel is mulling plans for a fresh 90-day ban on West Bank settlement building in return for a generous US package of political and military benefits, in a proposal which has enraged settlers and their supporters.

Sunday's demonstration, which drew mostly teenage settlers, was timed to coincide with the weekly cabinet meeting, after which Netanyahu was expected to brief MPs from his rightwing Likud party about details of the US offer.

Organisers said several thousand demonstrators had showed up, while police spokesman Mickey Rosenfeld told AFP the number was "more than 5,000."

A sea of banners and placards urged ministers to "Vote against," while others addressed Netanyahu, saying: "Yes you can! Say 'No,'" in a twist on US President Barack Obama's successful 2008 election campaign slogan.

"Renewal of the freeze is the start of the uprooting," said another, alluding to fears that a peace deal with the Palestinians will see the removal of Jewish settlements.

Scores of schools in settlements across the West Bank were observing a one-day protest strike on Sunday, freeing up thousands of students to attend the demonstration against the potential new moratorium.

Addressing the crowds from a stage outside Netanyahu's office, Danny Dayan, head of the Yesha Council of settlers, urged the Israeli leader to return to his nationalist roots and reject any new freeze.

"From this stage, we are saying to the prime minister: come back into the national camp, we want you here!" Dayan said to cheers of approval.

After the cabinet meeting, National Infrastructure Minister Uzi Landau, a hardliner who has vowed to fight any new freeze, headed straight for the podium to tell demonstrators that Israel "would not return to the 1967 borders."

Following the morning demonstration, several dozen protesters blocked the main road into Jerusalem, sitting on the ground and causing huge tailbacks, an AFP correspondent said.

Angry drivers faced off with the students who refused to move until the police arrived and dragged them out of the road, arresting two people.

Netanyahu is currently working to secure a firm majority within his 15-member security cabinet to push through a new moratorium, but is awaiting a written US document outlining terms of the deal before putting it to a vote.

The one-off freeze would halt new building in the West Bank but not in annexed east Jerusalem, which the Palestinians want as the capital of a future state.

But Palestinian president Mahmud Abbas on Sunday said he would not return to the negotiating table unless the freeze included east Jerusalem.

"If it does not encompass Jerusalem -- in other words, if there is not a complete freeze on settlement in all the Palestinian territories including Jerusalem -- we will not accept it," he reporters in Cairo after talks with Egyptian President Hosni Mubarak.

Direct peace negotiations resumed on September 2 but collapsed three weeks later with the expiry of a 10-month Israeli ban on West Bank settlement building.

The Palestinians have refused to rejoin the talks until a new moratorium is imposed.

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