The U.S. wants Israel to freeze construction in East Jerusalem for four months, according to the Israeli newspaper Ha'aretz.
In exchange, the U.S. says it would pressure Palestinian President Mahmoud Abbas to hold direct peace talks with Israeli Prime Minister Benjamin Netanyahu.
The freeze would include Jewish neighborhoods such as Neveh Yaakov, French Hill, and Ramat Shlomo, the source of recent tensions between the U.S. and Israel.
"According to this idea, Israel would make it clear to the United States that during the coming four months no massive construction in East Jerusalem neighborhoods would be planned or carried out, enabling Israel to be seen as meeting the American and Palestinian demands," the Ha'aretz article read.
Palestinians officials previously agreed to only indirect talks. They continue to refuse direct talks until Israel completely freezes construction in East Jerusalem.