AFP - Israeli Prime Minister Benjamin Netanyahu's headline speech to a pro-Israel conference in the US capital next week was being overshadowed Friday by speculation on whether he will have a meeting with President Barack Obama.

In the runup to a three-day annual conference opening Sunday, the powerful pro-Israel lobby AIPAC had urged the Obama team to defuse tension over plans for Jewish homes in east Jerusalem that endanger new US-brokered peace talks.

The Obama administration has toned down its angry reaction to the settlement announcement on March 11, but shown no sign it has yielded on calls for Israel to reverse course.

Netanyahu, due to speak to the American Israel Public Affairs Committee (AIPAC) Monday, finally called Secretary of State Hillary Clinton while she was in Moscow late Thursday about concerns she raised with him last week.

"They discussed specific actions that might be taken to improve the atmosphere for progress toward peace," Clinton spokesman Philip Crowley told reporters amid international talks in Moscow on the Middle East peace process.

Netanyahu's office said he had suggested "mutual confidence-building measures" that could be carried out by Israel and the Palestinians. Neither side gave details, including whether or not Netanyahu met US demands.

US officials were unable to say whether Obama would meet Netanyahu next week, now that the US leader will stay in Washington after postponing a visit to Asia and the Pacific.

However, a State Department official told AFP on the condition of anonymity that Clinton would likely "continue the discussions" with Netanyahu on the sidelines of the AIPAC conference.

Without referring to the row, AIPAC spokesman Josh Block said the annual policy conference "comes at an important time," calling it "an opportunity to celebrate the strength of the US-Israel partnership."

He told AFP the 7,500 participants will include the chief US diplomat as well as about half the members of the US Congress, including House Majority Leader Steny Hoyer and Republican Party Whip Eric Cantor.

In addition to Netanyahu, Israeli centrist opposition leader Tzipli Livni and Defense Minister Ehud Barak are set to attend.

The participants will talk "about the unbreakable bonds between the United States and Israel, and the shared challenges we face, including stopping Iran's pursuit of nuclear weapons capability and supporting Israel's quest for peace with all of her Arab neighbors," Block said.

Analysts warn the row over settlements might complicate a US-led drive for tougher sanctions against Iran over its uranium enrichment program, which the United States and Israel fear masks a bid to build an atomic bomb.

Israel has threatened pre-emptive military strikes against Iran.

In a tense call with Netanyahu last Friday, Clinton rebuked Israel for plans to build 1,600 new homes in east Jerusalem, saying it sent a "deeply negative signal" about US-Israel ties as Washington tries to revive peace talks.

The Palestinians want east Jerusalem as the capital of a future state. Israel claims all of Jerusalem as its capital.

AIPAC then warned Sunday that the tough Obama administration remarks on the alliance were "of serious concern," and urged the White House to ease tensions.

Daniel Kurtzer, a former US ambassador to Israel and Egypt, said AIPAC's attack was "a little unusual," but "may have been the price they were asked to pay in order for Netanyahu to promise to keep coming" to the conference here.

Kurtzer, now at Princeton University, told AFP that AIPAC has rallied a number of congressmen to publicly criticize the Obama administration's handling of the issue, but questioned how many it could ultimately line up.

"It's definitely not the usual Washington response where everybody lines up behind Israel. You now have the president lined up against Israel and it's not so simple then to chose sides the way it was in the past," he said.