An Israeli building programme planned for East Jerusalem is set to overshadow a meeting between Israeli and Palestinian leaders.
Thursday's summit between Ehud Olmert, the Israeli prime minister, and Mahmoud Abbas, the Palestinian president, is the first since the two agreed to renew peace talks at the US-sponsored Annapolis meeting last month.
The Jerusalem dispute has already clouded earlier meetings between negotiating teams.
Last month, Israel announced tenders for 307 new apartments in Har Homa, part of a ring of settlements built on confiscated Palestinian land in east Jerusalem.
Meanwhile, in the occupied West Bank, Israeli soldiers captured two senior members of the Islamic Jihad group in raids on Thursday, Palestinian security sources and witnesses said.
Israeli troops arrested Mohammad Assayda near Nablus, the Islamic Jihad said.
Assayda, who was released from Israeli jail in September, is a lecturer at al-Najah University.
Samer al-Saadi, another Islamic Jihad fighter, was captured in a separate raid in a refugee camp in Jenin, a Palestinian security officer told Reuters news agency.
Demand for halt
The Palestinians are demanding that Israel halt the Har Home housing project, in line with the peace roadmap which committed Israel to freeze settlement activity.
Israel, which annexed east Jerusalem in 1967 after capturing it along with the West Bank, does not accept demands to limit its construction there.
Israel views the Har Homa building project as distinct from settlement activity because it takes place in "unified" Jerusalem, rather than in the occupied West Bank.
The distinction is not accepted by Palestinians.
Al Jazeera's Ayman Mohyeldin, reporting from east Jerusalem, said Israeli settlement construction shows no sign of slowing down.
"The Knesset later today [Thursday] is expected to vote on the 2008 budget and in that budget is approximately $25 million that will go to the building of new housing units in the illegal settlements of Maale Adumim and Har Homa."
Abu Rdeneh, an aide to Abbas, said the Palestinian leader will ask Olmert for "a clear cessation of settlement activities" at Thursday's talks.
He said joint committees would begin discussing the main issues for a peace agreement at the meeting, "but there is a need to freeze the settlement activities in order to create the appropriate atmosphere to bring progress in the peace process".
Mark Regev, an Israeli government spokesman, said that Israel is committed to trying for a peace treaty with the Palestinians in 2008, as decided at Annapolis.
"This is an ambitious goal. It will demand our tenacity, our determination and both sides coming to the table in the spirit of seriousness," he said.
But Saeb Erekat, a senior Palestinian negotiator, said Israel's construction plan "kills the credibility of the peace process".
Egypt also criticised the Israeli intention to build new homes in east Jerusalem at a meeting on Wednesday in the Egyptian resort of Sharm el-Sheik between Hosni Mubarak, the Egyptian president, and Ehud Barak, the Israeli defence minister.
The talks focused on Israeli accusations that Egypt was not doing enough to prevent arms smuggling into Gaza, the Palestinian territory controlled by Hamas.
Barak said after the meeting that Israel and Egypt would continue to work together to resolve disagreements, but offered little evidence the sides had made progress on the issue.
Outcome at risk
Instead, Mubarak criticised the Israeli building programme as a threat to the Israeli-Palestinian process.
Suleiman Awwad, Mubarak's spokesman, said that "settlement activity will hijack the only outcome of the Annapolis conference".
Barak disagreed. "In our view, this is not part of the problem with the Palestinians," he said.
"We are not building new settlements."
Palestinians claim all of east Jerusalem as capital of a future state, while Israel claims all of the city as its capital.
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