Hamas declares 'Day of Rage' in Jerusalem

The homes, which were announced by the Interior Ministry last week, are to be built for a strictly Orthodox community in Ramat Shlomo, near the Palestinian village of Shuafat.

The new homes lie within the borders drawn up by Israel when it annexed East Jerusalem after capturing it in 1967.

Israel’s approval of the houses was made only 24 hours after indirect talks between Israeli and the Palestinians were announced, brokered by US special envoy to the Middle East, George Mitchell. The talks were announced during a visit to Israel by US vice president Joe Biden.

The chief Palestinian negotiator Saeb Erekat later refused to take part in the talks because of the approval of the housing.

Israeli Prime Minister Binyamin Netanyahu, who said he had not been informed of the decision on the new houses, announced by Interior Minister Eli Yishai, apologised over the “unsuccessful timing” of the revelation of the plans.

Relations between the US and Israel have reached their lowest ebb as a result of the row.

Mr Mitchell today cancelled a meeting with Israeli President Shimon Peres because of tension between the two countries.

US Secretary of State Hillary Clinton has called the settlement plans an “insult” to US efforts towards the Middle East peace process and British Foreign Secretary David Miliband has also been strongly critical.

But Foreign Minister Avigdor Lieberman defended the plans for the housing. He said: “There can’t be a situation where only Jews are prohibited from building in Jerusalem, while Arabs are allowed to both build and buy.”