..."We have expressed concern to the Israelis over time about the route of the fence and whether it intrudes too deeply into Palestinian territory -- more than is necessary for legitimate right of self-defense," Powell told U.S. lawmakers.

"But at the moment, we don't have any plans to dock them over the route of the fence," he added.

Sources close to talks between Israel and the United States had said last November that deductions for the fence were likely, though they would be small in size and come from loan guarantee installments in future years.

Under U.S. law, the State Department must deduct from the guarantees, on a dollar-for-dollar basis, sums that are spent "for activities which the president determines are inconsistent with the objectives and understandings reached between the United States and the government of Israel.