Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas on Thursday held their first summit since renewing peace talks last month, but failed to resolve a dispute over planned Israeli construction in east Jerusalem.

Abbas demanded at the meeting that Israel freeze its plan to expand the Jewish Har Homa neighborhood, Palestinian officials said. Abbas had appealed to U.S. Secretary of State Condoleezza Rice ahead of the meeting to pressure Israel to halt the project, Palestinian officials said.

But an Israeli official said after the Olmert-Abbas meeting that Israel continued to claim a right to build in Har Homa, which lies in the eastern sector of Jerusalem that Israel captured in the 1967 Mideast war and later annexed. Palestinians claim east Jerusalem as their future capital.

Palestinian negotiator Saeb Erekat said Abbas stressed the need to stop all settlement activities in order to facilitate the talks on a final peace accord, which were launched at an international conference on the Mideast in Annapolis, Md.

But although he reported no progress on narrowing the gaps between the two sides, both sides described the two-hour meeting, held at Olmert's official residence, as "positive" — possibly in an effort to defuse tensions before the arrival in the region next month of President Bush.

Bush is coming to the region for the first time in his seven-year tenure in a bid to build on momentum from the Annapolis conference.

Tensions over the plan to build an additional 307 apartments in the neighborhood have already clouded meetings of negotiating teams since the gathering in Annapolis, and have kept peace talks from beginning in earnest.

Har Homa, home to 8,500 people, is part of a ring of Jewish neighborhoods around east Jerusalem where about 180,000 Israelis live.

The Palestinians want a halt to all Israeli construction in east Jerusalem and the West Bank, which they claim as part of a future state. Israel committed to freeze all construction in West Bank settlements under the recently revived 2003 "road map" peace plan, but never honored that obligation.

During Thursday's meeting, Olmert reiterated pledges not to build any new settlements or expand existing settlements beyond their current borders, an Israeli official said.

However, Israel maintains the right to build within the existing limits of major West Bank settlements to account for natural growth. Olmert reiterated that policy Thursday, the official said, speaking on condition of anonymity because the talks were private.

Some 270,000 Jewish settlers live in the West Bank, most of them in the major settlement blocs, in addition to about 180,000 Israelis living in east Jerusalem neighborhoods.

Efforts to bring Israel and the Palestinians back to the negotiating table gained traction after Islamic Hamas militants seized control of the Gaza Strip in June. Abbas, a moderate, expelled Hamas from government after the takeover, freeing him to conclude a peace agreement.

Hamas is not party to the talks.

Before the Olmert-Abbas meeting began, Hamas pronounced the meeting a "waste of time."

"Olmert and his government continue their daily aggressions against our people, continue to build settlements, and don't recognize Palestinian political and national rights," the group said.

Israel frequently carries out airstrikes and ground incursions in Gaza to halt ongoing Palestinian racket attacks on southern Israeli communities.

On Thursday, three militants were killed and nine people were wounded, including four civilians, during an Israeli military operation in southern Gaza, Palestinian medical officials and militants said. Among the wounded was a 13-year-old boy. None of the injuries were life threatening, officials said.

The Israeli army said it fired and hit three militants who launched shoulder-propelled grenades.

Earlier in the day Palestinian militants had fired mortars at patrolling Israeli troops, the military said.