The greater Jerusalem area (also known as the "Jerusalem envelope") includes a few neighborhoods that are not as intrusive as the further settlements in the Ariel bloc, but are still extremely contentious. Israel does not see these as settlements (since they are within the boundary of municipal Jerusalem that Israel unilaterally annexed in 1967); so in addition to their large populations, Israel on principle demands that all these neighborhoods be dealt with along the parameters laid out by President Clinton in regard to Jerusalem that "Arab areas are Palestinian, and Jewish ones Israeli."
Giv'at Ze'ev (pop. roughly 12,000) is located northwest of Jerusalem, between Ramallah and Jerusalem. Palestinians contend that the proposed annexation of Giva'at Ze'ev would isolate East Jerusalem from the north (particularly Ramallah) and cut off Ramallah from many of the localities it serves in the area. Israelis insist that a border can be drawn that avoids these problems.
Ma'ale Adumim (pop. roughly 38,000) is located east of Jerusalem. Its large population make its annexation a key demand for Israeli negotiators. However, its location abuts the north-south connection of the West Bank's two parts, as well as one of the only areas to which the future Palestinian capital in East Jerusalem could expand. Numerous Israeli development plans and maps offered during previous negotiations, as well as the planned route of the security barrier, have proposed to annex not only the built-up area of the settlement, but a much larger swathe that includes smaller nearby settlements and the largely empty areas between them. Some plans - such as some of the Israeli maps offered at Camp David in 2000 - even call for the annexation to extend all the way to the outskirts of Jericho.
Har Homa (pop. roughly 12,000, and growing rapidly) is located inside Israel's self-declared municipal boundary of Jerusalem but which Palestinians -- and indeed the rest of the international community -- views as a controversial settlement that was created after the Oslo agreement was signed and is located between Bethlehem and the Palestinian parts of East Jerusalem. Its annexation would also restrict Bethlehem's natural development/expansion to the north and, in combination with Gilo, would essentially envelope the Arab villages of Beit Safafa and Sharafat.
Efrat (pop. roughly 9,000) is located east of the Etzion bloc. While it is relatively contiguous to the Etzion bloc, it is located east of Road 60 -- the main north-south artery in the West Bank -- and therefore its annexation would disrupt Palestinian contiguity, particularly between East Jerusalem and Hebron.
There are innovative proposals for how to avert or bypass some of the problems arising from the troublesome location of these neighborhoods and settlements. For example, in the case of Giv'at Ze'ev and Ma'ale Adumim, the Geneva Initiative suggests that only the built-up area of the settlement and a narrow corridor to them be annexed, and therefore rather simple infrastructure modifications would allow the free movement of Israelis and Palestinians in these areas.
Still, the settlements above represent the major gaps between the sides. The Baker Institute's Getting to the Territorial Endgame of an Israeli-Palestinian Peace Settlement gives a helpful settlement-by-settlement breakdown of each side's concerns on these and other areas. The annex in David Makovsky's extensive report, Imagining the Border: Options for Resolving the Israeli-Palestinian Territorial Issue gives useful thumbnail sketches of each of these settlements.