Under pressure from the Bush administration, Israel has agreed to cancel an arms deal with China and allow U.S. officials to review its future weapons transactions in an effort to resolve tension between Jerusalem and Washington, usually in lockstep over security matters.

The terms of the agreement, reported Sunday in the Israeli newspaper Haaretz, are set to be finalized this week when an Israeli delegation visits Washington. Under the deal, confirmed generally by Israeli officials Sunday, Israel will sign a memorandum of understanding with the Pentagon that will give U.S. officials some discretion over the terms of future Israeli arms exports. Israeli officials characterized the memorandum as a set of guidelines governing future transactions, including those in which the United States and Israel are competing.

The agreement aims to resolve a dispute that arose last year over Israel's plans to provide spare parts for a fleet of Harpy armed drone aircraft it sold to China in the 1990s with U.S. approval. U.S. defense officials objected on the grounds that the spare parts constituted a significant upgrade of the anti-radar aircraft, possibly including the addition of sensors that could even detect radar sites that are turned off.

The Pentagon ended cooperation with Israel on at least one joint weapons project and ceased contact with a senior official in the Israeli Defense Ministry. Under the terms of the agreement, as outlined by Haaretz, the Israeli government will not return the drone components to China and expects to pay compensation. The senior official, Maj. Gen. Amos Yaron, the ministry's director general, will retire in a few months, as he said he has planned.

"The defense minister and the prime minister have instructed the delegation to bring this to a quick resolution," said Raanan Gissin, a spokesman for Prime Minister Ariel Sharon. "That's what you're seeing now."

Concerned about China's rising military clout, during the past 15 years the United States has periodically expressed concern over Israeli weapons sales to China. The government of Taiwan, a U.S. ally in the region, has expressed concern over the Harpy deal. Military analysts there have said the estimated 100 drones Israel sold to China -- a deal military analysts here say is worth as much as $70 million -- would play a key role in any Chinese invasion of the island.

Israeli officials hoped to resolve the matter last week during a visit here by Secretary of State Condoleezza Rice. Before she departed, Foreign Minister Silvan Shalom apologized publicly for angering the United States, although some Israeli commentators have urged the government to proceed with the deal in order to show a measure of independence from its most important ally. The United States gives Israel more than $2 billion a year in military aid.

In a statement issued Sunday, Israel's Defense Ministry said the "proposals and agreements will be discussed within the framework of the ongoing discussions between Israel and the U.S."

Zalman Shoval, a Sharon adviser and former ambassador to the United States, said at the time of Rice's visit: "Certainly, the issue was there, on our minds and the American minds."

"We were told it doesn't in any way affect the relationship between the president and the prime minister," Shoval added. "But it does affect the security relationship. I think there will be an even more strong and strenuous effort to resolve this."

This is not the first time Israel has been forced to sever a deal with China to appease the United States. Five years ago, U.S. pressure scuttled Israeli plans to sell Phalcon reconnaissance aircraft to China, a deal valued at up to $1 billion.

"The United States takes the threat of China very, very seriously," said Dan Schueftan, a senior research fellow at the Shalem Center, a research group in Jerusalem generally felt to take a hard line on Arab-Israeli relations. "And when it comes to Israel, our relationship is so intimate that the United States expects from us, and I think they have the right to expect from us, not to mess with the Americans on matters like this."

Military analysts here say Israel's defense industry, one of the most advanced in the world, posted estimated revenues of $15 billion between 2000 and 2004. Israeli officials said much of that money was used for the development of weapons systems for the country's defense.

Meanwhile, in the Gaza Strip, Israeli settlers scuffled with Israeli soldiers less than two months before the evacuation of 21 Gaza settlements is scheduled to begin. According to the military and video broadcast on Israeli television, the soldiers were razing 11 abandoned cottages and buildings near a hotel being used by about 100 settlers who arrived in Gaza recently to try to prevent the evacuation from being carried out. Israeli military officials feared the settlers planned to occupy the buildings, which were part of an Egyptian beach resort before Israeli forces captured the Gaza Strip in the 1967 Middle East war.

The settlers and soldiers bumped and shoved each other before bulldozers carried out the demolitions. One Israeli soldier was arrested for refusing to follow orders; senior Israeli military officials have said they fear such acts of defiance will increase as the evacuation date draws closer.

Sharon, a longtime proponent of the settler movement, has said his plan to evacuate 8,500 settlers from Gaza and roughly 700 more from four settlements in the northern West Bank is designed to bolster Israel's security by reducing the Israeli presence in parts of the Palestinian territories that have proved difficult to defend. But the plan, known as disengagement, has divided Israelis along religious and political lines.

Hours before the incident, Sharon's cabinet approved a plan that offers evacuated Gaza settlers beachfront land just north of Gaza at deeply discounted prices. Two ministers opposed the plan, one saying it was a government attempt to buy the settlers' cooperation.

Jewish settlers confront soldiers sent to destroy abandoned cottages as part of Israel's pullout from Gaza.