Mark Lavie
Jerusalem

Israeli Prime Minister Ehud Olmert yesterday approved construction of houses in a West Bank settlement near Jerusalem, setting off another crisis in embattled peace negotiations.

The decision came three days after a Palestinian resident of Jerusalem shot dead eight students at a rabbinical seminary, dampening already low expectations for peace negotiations aimed at achieving a treaty this year.

Housing Minister Zeev Boim said the building would include 350 apartments in Givat Zeev, a West Bank settlement just outside of Jerusalem, and 750 homes in Pisgat Zeev, a Jewish district in east Jerusalem, which Israel captured in the 1967 Middle East war and is now claimed by Palestinians as their capital.

Boim said the Givat Zeev construction began eight years ago but was suspended because of fighting with the Palestinians.

"When violence subsided, demand grew again and contractors renewed their permits to build there," he said. The Pisgat Zeev site, he added, was inside Jerusalem's city borders. Israel's annexing of east Jerusalem is not recognised internationally.

Palestinian negotiator Saeb Erekat condemned the plans, saying they undermined already troubled peace efforts. "Why do they insist on doing this and humiliating Abu Mazen in front of the Palestinian public?" he said, using the nickname of Palestinian President Mahmoud Abbas.

Erekat appealed to the US to put pressure on Israel to halt the projects. Palestinians say Israeli settlement expansion is sabotaging their efforts to build a state in the West Bank and Gaza Strip.

Olmert and Abbas promised George W Bush in November to work for a peace treaty this year, renewing negotiations that were frozen during seven years of violence. However, the talks have already been interrupted several times because of arguments over Israeli construction in disputed areas.

Abbas had suspended the talks because of Israel's Gaza offensive last week, agreeing to renew them only under pressure from US Secretary of State Condoleezza Rice.

A US envoy, Lieutenant General William Fraser, is due in the region for his first joint meeting with Israelis and Palestinians this week.-AP