Israeli Prime Minister Ariel Sharon (search) has approved construction of 1,000 more homes in Jewish settlements in the West Bank, officials said Tuesday, violating a U.S.-backed peace plan that calls for a building freeze.

Hours later in the volatile Gaza City (search), Israeli forces launched an attack that killed at least five people, including three Palestinian militants, and wounded seven, witnesses and officials on both sides said.

Sharon's aides said they had Washington's tacit approval for the construction plan, because the houses would be built inside existing settlements that are among the enclaves Israel insists on keeping under any peace settlement with the Palestinians.

U.S. reaction was muted compared to earlier criticism of settlement building. In Washington, State Department spokesman Adam Ereli (search) said, "Our concern is to determine whether these tenders are consistent with Israel's commitments" to freeze settlements.

Palestinians denounced the plan, while Israel's moderate opposition Labor Party, mentioned as a possible partner in Sharon's governing coalition, demanded that the project be canceled.

In the Gaza attack early Wednesday, Palestinians said an explosion detonated in the Shajaiyeh neighborhood (search), a stronghold of Islamic militants, near a home owned by Hamas activist Ahmed Jabari.

Palestinians said two of the dead were Hamas (search) militants and the other was a member of the militant group Islamic Jihad (search), but they weren't further identified. The other two dead were not immediately identified and it wasn't known if Jabari was among the casualties.

Hospital officials said two of the seven people injured had critical wounds.

The Israeli military said it was an air force attack aimed at a Hamas militant, but had no further comment. Israel's military has targeted several extremists in the past, but militants also are often killed by bombs exploding as they build them.

In other violence, Israel's military said two Palestinian militants were killed while planting a bomb near a Jewish settlement in the Gaza Strip on Tuesday.

Also, Israeli soldiers fatally shot a 9-year-old boy in the West Bank city of Nablus on Tuesday, Palestinians said. The boy's aunt said a soldier fired when youths threw stones at a patrol and her nephew was hit by a bullet while sitting on the front steps of his home eating a sandwich.

The military said soldiers opened fire three times in Nablus on Tuesday but did not know of any deaths. It said troops were enforcing a curfew and also had found a workshop where Palestinians were making rockets.

The settlement issue resurfaced a day before a crucial meeting of the governing body of Sharon's Likud Party, which is to vote on whether the prime minister can continue efforts to woo Labor into joining his shaky coalition.

Sharon lost his parliamentary majority when some small hard-line parties withdrew support in reaction to his plan to pull out of all 21 settlements in the Gaza Strip and four in the West Bank late next year. Labor strongly backs Sharon's "unilateral disengagement" plan and opposes expanding settlements.

A Labor leader said rescinding the new construction approval should be a precondition for his party's continuing coalition talks with Likud, the Israeli newspaper Haaretz reported.

Palestinian Cabinet minister Saeb Erekat urged President Bush to press Israel to cancel the construction and live up to its obligations under the "road map" peace plan. "I think this is destroying the road map," Erekat said.

Egyptian President Hosni Mubarak called Sharon on Tuesday to discuss the pullout plan, and Sharon pledged to carry it out, Sharon's office said.

Mubarak discussed "the deteriorating situation in Palestinian territories, especially in the Gaza Strip," and appealed for an end to violence on both sides, according to Cairo's Middle East News Agency. Egypt has been working for a smooth transition of power after the Israeli pullout.

The issue of Jewish settlement construction is a major irritant in the complex relations among Israel, the United States and the Palestinians, who claim all of the West Bank and Gaza and demand that all the settlements be removed.

The "road map" was launched last summer with great fanfare by Bush but stalled in its opening phase because neither Israel nor the Palestinians carried out the initial requirements. The Israelis were supposed to stop settlement construction and remove unauthorized outposts, and the Palestinians were to dismantle violent groups attacking Israelis.

However, the Israelis note Bush acknowledged that even in a peace deal, Israel would not be expected to give up its main settlement blocs in the West Bank. The construction approved Tuesday in the Karnei Shomron, Ariel, Maaleh Adumim and Beitar Illit settlements "absolutely fits in with the American declarations," said Tzipi Livni, the acting housing minister.

Before the State Department comment, U.S. Embassy spokesman Paul Patin said Israel must honor its commitments. "Israel has accepted the road map and all its stipulations, and we expect it to abide by them," he said.

Adding to the pressure on Israel, U.S. officials confirmed that a delegation was coming to inspect the status of unauthorized settlement outposts and to push for dismantling them.

The Bush administration is displaying increasing impatience with Israel's slow pace in removing the outposts, which Washington and the Palestinians criticize as seeds of future settlements on land claimed by the Palestinians.