The Palestinian president warned on Sunday that he would not accept a U.S.-backed proposal for resuming peace talks unless Israel stops building homes for Jews in disputed east Jerusalem.

Mahmoud Abbas' position complicated already troubled American efforts to restart peace talks. Israeli hard-liners say they won't accept the proposed 90-day moratorium on new settlement construction in the West Bank if it also includes east Jerusalem.

The Palestinians say there can't be peace talks if Israel continues to build homes in captured territories where they want to establish an independent state. And in Cairo on Sunday, Palestinian President Mahmoud Abbas said any construction freeze must include east Jerusalem "first and foremost."

"If the moratorium does not apply to all Palestinian territories, including east Jerusalem, we will not accept it," Abbas said after consultations with President Hosni Mubarak of Egypt.

In other news Sunday, an Israeli military court handed down three months' suspended sentence to two soldiers convicted of using a 9-year-old Palestinian boy as a human shield during last year's Gaza Strip war. The soldiers were also demoted.

The military bars troops from using civilians as human shields, and the soldiers' conviction last month was the most serious yet in connection with the war. It appeared the sentence was light as the soldiers had reportedly faced up to three years in prison. The men will serve no jail time if they stay out of trouble for the next two years.

The court said the soldiers asked the boy to open bags in a building they took over, fearing explosives were inside.

Israel has faced widespread criticism that it failed to properly investigate alleged wrongdoing by troops during the three-week military operation. Some 1,400 Palestinians were killed, including more than 900 civilians, according to Palestinian figures and international human rights groups.

The Palestinians claim the West Bank and east Jerusalem, as well as the Hamas-ruled Gaza Strip for a future independent state.

Peace talks between Israel and the Palestinian government in the West Bank broke down just weeks after they began with the expiry of an earlier, 10-month building slowdown in the West Bank.

With the fate of Mideast peacemaking hanging in the balance, the U.S. has been pushing Israel to impose a new moratorium to draw Palestinians back to the negotiating table. As an incentive, Washington has offered Israel a fleet of next-generation stealth warplanes and promises to veto anti-Israel resolutions at the United Nations.

But the ultra-Orthodox Shas Party, which holds the swing votes in the inner Cabinet that is to vote on the moratorium, has demanded a written assurance from the U.S. that construction in east Jerusalem not be affected. The U.S. has agreed to provide a written statement detailing the moratorium's deals, but Shas said Sunday that the statement had not yet arrived.

Israel claims east Jerusalem, captured in the 1967 Mideast war, as an integral part of its capital. Palestinians hope to establish their future capital in east Jerusalem.

A Netanyahu spokesman refused to comment on the state of talks with the U.S. The initial moratorium did not apply to east Jerusalem, though in practice, construction was curbed there, as well as in the West Bank. A total of 500,000 Jews live in both areas.

Netanyahu also faces criticism within his own Likud Party, where several ministers have endorsed a settler campaign against construction limitations. Hundreds of Jewish settlers — many of them youths who skipped school — demonstrated against any construction limits outside Netanyahu's office on Sunday.

"We came here as a part of our campaign to prevent the great damage that the renewal of the moratorium and submitting to American pressure can do to Israel's self interest," said Dani Dayan, a leader of the settlers' umbrella council.

Netanyahu was set to meet with Likud's parliamentary faction and with opposition leader Tzipi Livni of the Kadima Party. Livni, a former foreign minister, could potentially join his hard-line coalition as a dovish counterweight.

A Netanyahu spokesman characterized both meetings as "routine."

The U.S. hopes a renewed moratorium will allow Israel and the Palestinians to make significant progress toward working out a deal on their future borders. With borders determined, Israel could resume building on any territories it would expect to keep under a final peace deal.

A former U.S. ambassador to Israel, Dan Kurtzer, had harsh words for the dealmaking. He accused Washington of preparing "to reward Israel for its bad behavior."

Writing in The Washington Post on Saturday, Kurtzer also warned that America's commitment to Israel's security — once insulated from politics — would become "merely a bargaining chip with which to negotiate what Jerusalem will or will not do to advance the peacemaking."


Associated Press reporter Maggie Michael contributed to this report from Cairo.