Regional, international criticism over Israel’s latest decision to build more settlement units in Jerusalem, West Bank

Obama says Israeli decision forms an obstacle on road to peace, Europe urges Israel to back down

Palestinian Authority insists on halting settlement as precondition for talks, believes it is high time tough decisions are taken

Israeli conference mulls turning Jordan into Palestinian state

U.S. President Barack Obama led international condemnation of a plan to build 1,300 settler homes in East Jerusalem, further testing Israel's volatile relationship with the United States.

The U.S. president chastised Benjamin Netanyahu's government for the decision, which prompted Palestinian accusations that the Israeli prime minister is bent on "destroying" peace talks.

"This kind of activity is unhelpful when it comes to peace negotiations," said Obama, speaking in Jakarta as he began the second leg of a tour of Asian democracies.

Hillary Clinton, the U.S. Secretary of State, is to demand an explanation for the building plan, which was unveiled this week, when she meets Netanyahu.

"We were deeply disappointed by the announcement of advanced planning for new housing units in sensitive areas of East Jerusalem," PJ Crowley, the State Department's spokesman, said. "It is counter-productive to our efforts to resume direct negotiations between the parties."

The building proposal dealt a serious blow to Obama's efforts to revive peace talks, which have been frozen by the Palestinian leadership in protest at Israel's refusal to extend a partial moratorium on settlement construction that lapsed in late September.

Saeb Erekat, the chief Palestinian negotiator, said the move deepened Israel's occupation, and called on the international community to respond by recognizing Palestinian independence.

Obama has called on Israel to impose a limited, one-off extension to the settlement moratorium.

Secretary of State Hillary Rodham Clinton criticized Israel's latest building plans in east Jerusalem, an issue that has divided the two governments and imperiled efforts to revive Middle East peace talks.

Clinton called the proposed construction of 1,300 apartments "counterproductive" and an obstacle to restarting peace talks with the Palestinians.

"The United States was deeply disappointed by the announcement of advance planning for new housing units in sensitive areas of east Jerusalem," Clinton told reporters at the State Department.

Her remarks came one day before she was scheduled to meet in New York with Israeli Prime Minister Benjamin Netanyahu, who earlier rejected President Barack Obama's criticism of the construction project.

Netanyahu's office issued a statement that said "Jerusalem is not a settlement; it is the capital of the state of Israel," and insisted there was "no link" between the peace talks and its development plans for the city.

The Palestinians hope to make eastern Jerusalem the capital of a future Palestinian state as part of a peace deal. Israel captured east Jerusalem in the 1967 Mideast war.

The latest round of Israeli-Palestinian talks began in September after a nearly two year interruption, but they quickly stalled over the issue of settlement expansion.

Palestinians have said they will not resume the talks unless Israel halts construction of new housing in Jewish settlements in Israeli-occupied West Bank and east Jerusalem.

They have demanded that Israel renew a 10-month West Bank settlement slowdown that expired in late September – and add Jerusalem to it.

A statement released by EU High Representative for Foreign Affairs Catherine Ashton's office said she "is extremely concerned" by Israel's announcement of the new construction plan.

The plan includes 1,025 settlement units in Har Homa and 320 in Ramot settlements in the illegally annexed East al-Quds, which the Palestinians have long been demanding as the capital of their future Palestinian state.

"This plan contradicts the efforts by the international community to resume direct negotiations and the decision should be reversed," the statement read.

The US also expressed "deep disappointment" with the announcement by Tel Aviv of plans to build more than a thousand new settlement units in “sensitive areas” of East al-Quds.

The US State Department described the move as "counterproductive" to Washington's efforts to resume stalled direct negotiations between the Palestinian Authority (PA) and Israel.

Launched on September 2 in Washington, the direct talks were soon derailed by Israel's refusal to extend a partial, 10-month settlement freeze after it expired on September 26.

The Palestinians accuse Israel of efforts to Judaize East al-Quds -- which holds some of the most revered Muslim holy sites -- through relentless settlement construction and demolishing Palestinian and Muslim monuments and replacing them with Jewish ones.

The Palestinian side argues that Israel's takeover of East al-Quds would effectively shake the feasibility of the establishment of a Palestinian state.

Palestinian president Mahmoud Abbas called for the UN Security Council to urgently debate Israeli settlement building, which has deadlocked peace talks, his spokesman said.

Nabil Abu Rudeinah said Abbas had "instructed the Palestinian representative to the United Nations to request an urgent session of the Security Council to discuss the issue of widespread settlement in Jerusalem and the West Bank."

The decision to approach the United Nations came just days after Israel confirmed it was planning to build more than 1,300 new homes in annexed Arab east Jerusalem.

The news prompted a chorus of international condemnation, led by US President Barack Obama and a furious reaction from the Palestinians who urged the international community to immediately recognize a Palestinian state.

"This latest unilateral Israeli act necessitates dramatic international action for immediate recognition of the Palestinian state (based) on the June 4, 1967 borders," chief negotiator Saeb Erekat said.

Peace talks between the two sides have been teetering on the brink of collapse since the end of September when an Israeli moratorium on West Bank settlement construction ran out.

Since then, the Palestinians have refused to continue talking while Israel builds on land they want for a future state and have called for the building ban to be re-imposed.

US-led efforts to prod Israel into reinstating the freeze have so far led nowhere, prompting the Palestinians to repeatedly threaten to seek UN recognition of their state if peace talks fail.

But Israel remained defiant, insisting that construction in the city would never stop.

"There has never been a freeze on construction in Jerusalem and there never will be such a freeze," cabinet secretary Zvi Hauser told public radio.

"Construction will continue in Jerusalem just as it continues in Tel Aviv," he said.

Although the building freeze did not apply to east Jerusalem, Israeli Prime Minister Benjamin Netanyahu had quietly held off approving projects there for most of the 10-month freeze to avoid the political fallout.

Details of the new construction emerged a day after Netanyahu flew to the United States to discuss ways to jump start the peace talks.

The storm over east Jerusalem settlement building is expected to be high on the agenda when the Israeli leader and US Secretary of State Hillary Clinton meet for talks in New York.

Speaking ahead of their meeting, Clinton expressed disappointment over the Israeli decision but said she remained hopeful that progress could be made.

"We still believe a positive outcome is possible and necessary," she said.

Israel shrugged off the wave of condemnation, with Netanyahu's office saying there was "no connection between the peace process and the planning and building policies in Jerusalem."

But Washington dismissed that argument, with State Department spokesman Philip Crowley saying: "There clearly is a link in the sense that it is incumbent upon both parties... they are responsible for creating conditions for a successful negotiation."

In Jerusalem, visiting US Senator John Kerry warned that the moment for Middle East peace was in danger of slipping away.

"The window of opportunity for a comprehensive peace is closing, narrowing is the best way to put it," he said after meeting with Israeli President Shimon Peres.

"This is a moment for statesmanship, it is a moment to try and define the opportunities and move forward rapidly."

A Palestinian poll published this week showed that 62 percent of people polled backed the Palestinian position that there should be no resumption of negotiations without a fresh moratorium on settlement building.

The poll, conducted by the Jerusalem Media and Communications Centre, surveyed 1,200 adults from across the West Bank and Gaza Strip in late October, and had a margin of error of three percentage points.

Israel seized east Jerusalem in the 1967 Six Day War and annexed it shortly afterwards in a move not recognized by the international community or the Palestinians, who consider it the capital of their promised state.

The Palestinians see the settlements as a major threat to the establishment of a viable state, and they view the freezing of settlement activity as a crucial test of Israel's intentions.

Meanwhile, Israel is mulling a US proposal for addressing key security concerns that would entail leasing swathes of the Jordan Valley from a future Palestinian state, army radio said.

The radio quoted anonymous Israeli officials as saying Washington had suggested a seven-year lease. They said Prime Minister Benjamin Netanyahu had not rejected the idea out of hand but was looking for a far longer period.

"Anything less than a 99-year lease is not worth talking about," an unnamed cabinet minister was quoted as saying.

The Jordan Valley, which runs from the Sea of Galilee down to the Dead Sea, is about 100 kilometers (62 miles) long. Around 80 percent of it runs through the occupied West Bank, and it also flanks the Israel-Jordan border.

Netanyahu has said Israel must maintain a security presence along the border in a peace deal with the Palestinians to ensure heavy weapons are not smuggled into their state and to prevent a link-up with hostile military forces.

The Palestinians have rejected any Israeli security presence in their future state but have said they would be open to foreign peacekeepers.

"No ideas have been presented to us about renting out Palestinian lands, and if this is offered to us we will not accept it," said Mohammed Shatayeh, a member of the Palestinian negotiating team.

"We consider this a trial balloon in the media and completely reject it."

The premier's office would neither confirm nor deny the report while a cabinet minister said he had no knowledge of such a proposal.

"I have no clue," said Welfare Minister Isaac Hertzog, who has observer status in Netanyahu's inner security cabinet. "I'm saying it out loud, I don't know anything about it."

However, Hertzog said he believed various "formulas" were being discussed in an effort to restart stalled Israeli-Palestinian peace talks and that Netanyahu's planned visit to the United States next week was likely to be key.

"I think that it will be a very important visit," Hertzog told a group of diplomats and foreign journalists. "I hope that next week we will be able to see a formula that will enable us to move forward."

Netanyahu said he would fly to the United States on November 7 to meet US Vice President Joe Biden and other officials to discuss "a renewal of the peace process with the aim of reaching an agreement on peace with security for the state of Israel."

He will not be meeting US President Barack Obama, who will be traveling in Asia at the time.

Israel and the Palestinians resumed direct peace negotiations on September 2, but the talks ran aground later that month after the expiry of a 10-month Israeli moratorium on Jewish settlement building in the West Bank.

Netanyahu has steadfastly refused to re-impose the ban, while Palestinian president Mahmud Abbas has declined to talk while Israel builds on land he wants for a future state, prompting intense US efforts to resolve the deadlock.