JERUSALEM - Days before Israel relaunches formal peace talks with the Palestinians, a key ally of Prime Minister Ehud Olmert signalled on Sunday that Israel intends to hold on to all Jewish neighbourhoods in disputed Jerusalem -- a position that undercuts the Palestinians' claim to the eastern part of the city for their future capital.
Among those neighbourhoods is Har Homa, a neighbourhood where Israel plans to build more than 300 new homes. Last week's announcement of the planned construction drew rare U.S. criticism that Israel was undermining the fledgling peace talks.
In a radio interview, Vice Premier Haim Ramon said Israel should make it clear that it intends to turn over Arab neighbourhoods of the city to Palestinian control, but would retain Jewish neighbourhoods, including those built in east Jerusalem.
"When we have a clear-cut policy that says Arab neighbourhoods that were never part of Jerusalem won't be part of Jerusalem and that all Jewish neighbourhoods, including Har Homa, will be part of Jewish Jerusalem, then I imagine the United States, too, will understand that position,'' Ramon told Israel Army Radio.
Israel captured east Jerusalem in the 1967 Mideast war and annexed the area. The move has not been recognized internationally, and the Palestinians want to establish their capital there.
The fate of the city is one of the most sensitive areas of dispute in the Israeli-Palestinian conflict because east Jerusalem is home to key Jewish, Muslim and Christian holy sites.
Palestinian Foreign Minister Riad Malki denounced Ramon's statement and its timing: On Wednesday, negotiating teams from both sides are to sit down together for their first formal talks in seven years.
"These statements place obstacles before any serious attempts by Palestinian negotiators on Jerusalem,'' Malki said. "They aim to create confusion and change the course of negotiations before they begin. They try to pressure Palestinians and the international parties to think of Israeli needs before they begin.''
Israel's announcement last week that it would go ahead with plans to build 307 apartments in Har Homa came days after both sides officially announced the resumption of peace talks at a U.S.-sponsored conference.
The move fuelled Palestinian accusations of bad faith -- and less predictably, a denunciation from U.S. Secretary of State Condoleezza, who said the decision wouldn't "help to build confidence'' between the two sides.
Israel's Housing Minister, Zeev Boim, told Israel Army Radio on Saturday that it was Israel's right to build in Har Homa -- and everywhere else in the expanded boundaries of Jerusalem.
"It's inconceivable that the peace process requires a halt to all construction in Jerusalem, in an area that is within Jerusalem's municipal boundaries,'' Boim said. "There's nothing to prevent us from building there, just as there is nothing to prevent us from building anywhere else.''
After 40 years of construction, Jews in east Jerusalem number 180,000, rivaling the Arab population of 240,000, according to government statistics and the Jerusalem Institute think tank.
For years, Israeli governments rejected any talk of dividing or sharing the city. But two months ago, Ramon indicated a major governmental shift when he spoke openly about sharing Jerusalem with the Palestinians.
Shortly after, Olmert himself publicly suggested that Israel's control of some traditionally Arab parts of the city might not be necessary. He named some outlying neighbourhoods in the eastern sector, but not the Old City.
The Old City is the most explosive component of any talks on Jerusalem. It is home to the site of the Jewish biblical temples and their remnant, the Western Wall. The Al-Aqsa Mosque compound, Islam's third-holiest shrine, is built over the remains of the ancient temples.
The competing claims to Jerusalem have derailed past peace talks, and are sure to complicate the new round of negotiations. The sides have pledged to try to work out a final peace deal by the end of 2008.
In related news, a settler group said it planned to set up nine settlement outposts in the West Bank on Sunday. But the Israeli military declared the areas closed military zones with a view to blocking the settlers' operation.
Settlers began setting up outposts more than a decade ago in an effort to break up Palestinian areas and prevent the establishment of a Palestinian state. The more than 100 outposts range from isolated trailers to permanent construction on a larger scale. Many are near existing, authorized settlements, in effect extending their reach.
Israel promised years ago to remove dozens of outposts, but they remain standing.
On Saturday, Palestinians built a mock outpost in the West Bank to protest Israel's ongoing settlement expansion. An Israeli police truck quickly knocked down the house they constructed and arrested about 10 demonstrators.
