Israel plans to build nearly 700 new apartments in east Jerusalem, the Housing Ministry said Monday, drawing tough criticism from both the Palestinians and the United States, which denounced it as an obstacle to peacemaking.

The dispute over east Jerusalem is the most intractable — and explosive — in the Israeli-Palestinian conflict.

Palestinians claim east Jerusalem as the capital of a future state and consider Jewish neighborhoods there to be settlements. Israel claims all of the city as its eternal capital.

Prime Minister Benjamin Netanyahu announced a slowdown in West Bank settlement construction several weeks ago in hopes of bringing the Palestinians back to the negotiating table. But the order did not include construction in east Jerusalem, home to sensitive Jewish, Muslim and Christian holy sites.

"We make a distinction between the West Bank and Jerusalem. Jerusalem is our capital and remains such," said government spokesman Mark Regev.

The Housing Ministry said it had approved a total of 692 new apartments in three existing Jewish neighborhoods already inhabited by tens of thousands of people.

Israel does not consider its east Jerusalem neighborhoods to be settlements. It captured the city's eastern sector in the 1967 Mideast war and immediately annexed the area. The international community does not recognize the annexation.

"We condemn this Israeli policy of continuing settlement activities, and we hope this will be an eye opener for the U.S. administration and other members" of the international community, said Palestinian official Saeb Erekat.

The Palestinians have refused to reopen peace talks, which broke down a year ago, until Netanyahu halts all settlement construction in the West Bank and east Jerusalem. For months, the United States has been trying to bring the sides together.

An Israeli official said the government had informed the Obama administration about the latest planned construction. He spoke on condition of anonymity because he was not authorized to discuss the matter with the media.

However, a U.S. official said the construction was another blow to peace efforts.

"We feel that unilateral actions make it harder for people to get back together at the table, and that's what our goals are," said the official, speaking on condition of anonymity pending a formal reaction from Washington.

"We also have mentioned in the past ... that we consider all the Israeli settlements to be beyond the pale of what we wish to see going on, and are not helpful, again, to getting the two sides back to the table," he said.

Netanyahu announced the settlement slowdown last month in a bid to rekindle peace talks with the Palestinians. But the Palestinians have rebuffed that overture because the order does not affect east Jerusalem and or block construction that is already under way on 3,000 settlement apartments.

Settlement construction became the key sticking point in resuming negotiations after U.S. President Barack Obama demanded a total cessation shortly after taking office. He has since softened his stance, but the Palestinians have not.

News of the east Jerusalem construction plans was disclosed as a former Israeli lawmaker reported that Netanyahu was hammering out an agreement with the Americans on a framework for relaunching peace talks.

Retired lawmaker Yossi Beilin said the framework would include negotiations on borders, the status of Jerusalem and the fate of Palestinian refugees. However, Netanyahu has not accepted the key Palestinian demand of basing a final settlement on the borders before the 1967 war.

The Palestinians have insisted on a clear framework as a condition for restarting negotiations.

Beilin, an architect of Israeli-Palestinian peace accords in the 1990s, would not say where he got his information. But he remains in touch with government officials and weeks ago, he was the first to report Netanyahu's plans for a 10-month slowdown in West Bank settlement slowdown.

Regev, the government spokesman, said that Beilin "speaks for himself, definitely not for the prime minister."

Washington's special Mideast envoy, George Mitchell, is due back in the region on Jan. 7 to try to prod peacemaking ahead, a Palestinian official said. He spoke on customary condition of anonymity when discussing U.S. officials' timetables.