Days before Israel resumes formal peace talks with the Palestinians, a dispute has erupted over East Jerusalem. As Robert Berger reports from VOA's Jerusalem bureau, Israel has responded defiantly to U.S. and Palestinian criticism of new construction plans in the city.

Arab workers build at construction site of new housing units in the Israeli neighborhood of Har Homa, East Jerusalem, 9 Dec 2007

Deputy Prime Minister Haim Ramon says Israel plans to hold on to all Jewish neighborhoods in disputed East Jerusalem.

Ramon told Army Radio that Israel is willing to hand over many of the Arab neighborhoods of the city to Palestinian control, but he said the Jewish neighborhoods will remain a part of the Israeli capital.

Israel captured East Jerusalem, including the sacred Old City, from Jordan during the Six Day War in 1967, and the Palestinians claim it as the capital of their future state.

Ramon was responding to Secretary of State Condoleezza Rice, who criticized Israel's plans to build 300 new houses in the disputed East Jerusalem neighborhood of Har Homa.

"We are in a time when the goal is to build maximum confidence between the parties, and this does not help to build confidence," said Rice.

Palestinians have also blasted the construction plan, saying it violates the understandings at last month's Annapolis conference, where the two sides agreed to resume peace talks after a 7-year break.

"The two state solution is still possible," said Palestinian legislator Hanan Ashrawi. "The Americans claim this is their policy, that they are committed to building a Palestinian state. Then they need to do it rapidly, before Israel destroys the very foundations of the two-state solution."

The United States and Palestinians believe the Har Homa construction violates the "Roadmap" peace plan, which calls for a settlement freeze. But Israel says the Roadmap does not apply to Jerusalem, and building in Har Homa will continue.