Israel announced plans Friday to build 100 more homes in two West Bank settlements, one deep inside the territory sought by the Palestinians for their future state.

Israel's housing minister said Israel never promised to freeze all such construction, although a U.S.-backed peace plan calls for a moratorium on settlement building.

In a television interview, Palestinian President Mahmoud Abbas said the expansion of settlements has emerged as a key obstacle to progress in peace negotiations with Israel.

The talks resumed after a U.S.-hosted peace conference in November, but there has been little visible progress. Since November, Israel has announced several building projects in areas of Jerusalem claimed by the Palestinians.

Friday's announcement marked the first time that the government has approved construction deep inside the West Bank, in the settlement of Ariel. It also authoritized new homes for the Elkana settlement.

Palestinian negotiator Saeb Erekat said such construction "undermines our efforts to make 2008 the year of peace."

As part of the U.S.-backed "road map" peace plan, Israel is supposed to dismantle dozens of illegal settlement outposts and halt other settlement construction. Under the same plan, the Palestinians are required to disarm militant groups that attack Israel.

Israeli Housing Minister Zeev Boim said the new apartments are needed to accommodate natural population growth in the two settlements.

"The Israeli government never promised that it won't build in the settlement blocs," Boim told Channel Two TV, referring to large settlements that Israel says it will keep under a final peace deal.

Israeli media said the new construction apparently is part of negotiations between the government and settler leaders. Approval for the 100 homes came in return for the recent voluntary evacuation of two small settlement outposts, a security official said.

Peace Now, an Israeli settlement watchdog, said the government is caving in to pressure from settlers. "This is making the (peace) negotiations irrelevant and a deal much harder to implement," said the group's Yariv Oppenheimer.

Abbas told the Arab satellite TV station Al Arabiya that it will become apparent soon whether a peace deal is likely.

"It is possible to reach an agreement in a month or two, or not to reach an agreement," he said, according to excerpts from the interview carried by the Palestinian news agency WAFA. "Now we want to deal with these (final status) issues. Settlement is an obstacle, and a main obstacle."

Abbas said he asked Israeli leaders repeatedly about their settlement policy. "Why don't you stop settlement?" he said he asked Israeli negotiators. "If you say ... all the settlements are yours, why then are they on the negotiating table?"

Israeli Prime Minister Ehud Olmert told the newspaper Yediot Ahronot in an interview published Friday that Abbas is aware of Israel's position that it will continue to build in established settlements. Several of those blocs are close to Israel, but Ariel is deep inside the West Bank.

Recent Israeli construction in Jerusalem prompted Abbas to briefly call off peace talks.

Abbas, currently in Russia, is heading to Washington for a meeting with President Bush on Thursday. In his interview, Abbas said he will meet with Bush one more time, on May 17 in Egypt's Sharm el-Sheik resort, after Bush attends Israel's 60th anniversary celebrations.

In other developments, Israel sealed the West Bank and Gaza for the duration of the weeklong Jewish Passover holiday, which begins at sundown Saturday. Holiday closures are routine, and bar most Palestinians from entering Israel.

In a West Bank raid, Israeli forces killed a Palestinian militant leader, Hani al-Kabi, in the Balata refugee camp next to the West Bank city of Nablus. An Islamic Jihad fighter was reported seriously wounded.

Al-Kabi fled a Palestinian jail a month ago, violating the conditions of a deal with Israel that would have granted him amnesty.