The US has offered Israel a package of incentives in exchange for a settlement construction freeze in the West Bank, diplomatic sources say.
Under the reported plan, Israel would stop construction for 90 days in the West Bank but not in East Jerusalem.
The Israeli cabinet is now considering the package.
The settlement row threatens to derail direct Israeli-Palestinian peace talks, which resumed in the US in September after a break of almost 20 months.
Israel and the US have not commented on the details of the plan.
It was discussed when US secretary of State Hillary Clinton met Israeli Prime Minister Benjamin Netanyahu in New York on Thursday, BBC State Department correspondent Kim Ghattas says.
According to the diplomatic sources, the plan includes a US pledge not to seek any extension to the settlement building freeze beyond 90 days.
In return, Washington reportedly offered Israel various security guarantees and commits itself to fighting international resolutions critical of Israel.
Peace talks between Israelis and Palestinians stalled a few weeks after their resumption, as Israel's 10-month construction freeze in the West Bank expired on 26 September.
The Palestinians - backed by the Arab League - have pledged not to return to the talks without a full settlement construction freeze, but have given US negotiators until early November to try to break the impasse.
Washington has been trying desperately for two months to revive deadlocked peace talks, and the reported 90-day freeze may be enough to get the Palestinians back to the negotiating table, our correspondent says.
She adds that within those three months Washington hopes it can get serious discussions under way about the borders of a future Palestinian state.
Last month, Mr Netanyahu offered to renew the freeze if the Palestinians recognised Israel as a Jewish state, but the Palestinian leadership dismissed the proposal as unfair.
Israel has occupied the West Bank, including East Jerusalem, since 1967, settling close to 500,000 Jews in more than 100 settlements. They are considered illegal under international law, although Israel disputes this.