JERUSALEM -- Israel has ended its unofficial building freeze in east Jerusalem, giving the green light for hundreds of new homes in Jewish neighborhoods of the traditionally Arab sector of the city -- and dealing another potential blow to U.S.-led efforts to salvage peace negotiations.
The Palestinians, who have threatened to quit the just-restarted U.S.-brokered peace talks without a complete freeze on West Bank construction, on Friday condemned the decision as a move that casts doubt on the Israeli government's interest in peace.
U.S. mediators have been scrambling for weeks to keep the talks alive and the Arab League last week gave the sides an additional month to find a way out of the impasse.
It's unclear whether the latest Israeli move -- announced late Thursday in an uncharacteristically low-key statement -- could be a payoff from Prime Minister Benjamin Netanyahu to hawkish coalition partners for possible compliance with demands from around the world that Israel resume a curb on West Bank settlements.
That so-called "moratorium" expired last month, on schedule but with unfortunate timing -- about three weeks after the Obama administration finally coaxed the two sides back into direct talks aimed at ending a century's conflict.
President Barack Obama says he hopes for an agreement within one year, and the Palestinians expect a state in the West Bank and Gaza with east Jerusalem as its capital.
Palestinian negotiator Nabil Shaath said after learning of the approval of new east Jerusalem construction that "the Israelis are going on a rampage" and accused them of "creating one crisis after another."
"This announcement is a very clear-cut indication that the choice of Mr. Netanyahu is settlements, not peace," said Palestinian chief negotiator Saeb Erekat.
Netanyahu's office refused to comment, and there was no immediate comment from U.S. officials.
Israel's Housing Ministry signed off on the construction of 238 new homes in the east Jerusalem neighborhoods of Ramot and Pisgat Zeev as part of a larger announcement allowing developers to bid on thousands of housings contracts across Israel.
Earlier this year, Israel angered Washington when a similar building plan was announced during a visit by Vice President Joe Biden, catching the U.S. administration by surprise and sparking a crisis between the close allies.
The project was then quietly shelved and the result was the unofficial halt of east Jerusalem construction -- until now.
This time, Israel discussed the new construction with the U.S. administration and cut the number of planned units by several hundred to temper American displeasure, according to Israeli officials. Washington was unhappy with the decision but was not caught off guard by the announcement, according to the officials, who spoke on condition of anonymity because of the sensitive nature of the issue.
Palestinian government spokesman Ghassan Khatib called on the U.S. to intervene immediately and "convince Israel to halt the expansion of the settlement activity."
"We see in it a strong indication of the lack of seriousness regarding the negotiations and the peace process," Khatib said.
Right-wing Israeli lawmakers, however, suggested the relatively modest number of units approved reflect Netanyahu's attempt to silence internal dissent ahead of a new moratorium of West Bank construction.
Hagit Ofran, of the Israeli anti-settlement watchdog Peace Now, noted that actual tenders have yet to be published -- and therefore no potential buyers can offer proposals yet.
"This was only an announcement ... on the intentions, which can still be stopped," she said, adding that it was mainly a "political statement."
Earlier this week, Netanyahu for the first time offered to extend the West Bank restrictions -- but only in exchange for a Palestinian recognition of Israel as a "Jewish state," which the Palestinians immediately rejected.
Israel imposed its settlement slowdown in the West Bank last November, saying it was a one-time gesture good for 10 months only. The slowdown meant existing projects could continue, but with some exceptions new ones could not be launched. The restrictions didn't include east Jerusalem, although Israel quietly halted building there as well -- with the notable exception of the construction announced during Biden's visit in March.
The fate of east Jerusalem is one of the most sensitive issues in Israeli-Palestinian negotiations. It is home to around 250,000 Palestinians, who hope to make it the capital of a future state.
Around 180,000 Israelis live in neighborhoods Israel built since capturing the eastern sector of the city from Jordan in the 1967 Mideast War and then annexing it, a move not recognized by the international community.
Past peace plans have proposed leaving the Jewish neighborhoods under Israeli sovereignty. But the Palestinians and the U.S. have said Israeli construction there is provocative nonetheless and undermines peace talks.
Egypt's foreign minister, Ahmed Aboul Gheit, said Friday that if Israel continues to build settlements Arab nations might seek U.N. recognition of a Palestinian state without Israel's approval.
Shaath said the Palestinians have not decided on a unilateral statehood declaration.
"So far, the decision is to wait until the first week of November. If the Israelis keep escalating, perhaps this requires other measures," he said.