Israel says East Jerusalem construction to continue

JERUSALEM --- Prime Minister Benjamin Netanyahu declared Sunday that Israel would not restrict construction in east Jerusalem, a step the U.S. has requested -- sticking to a tough position hours before he sets off on his first trip to Washington since a diplomatic row erupted between the two allies.

Netanyahu also said he was willing to broaden indirect talks with the Palestinians to include the main issues dividing them. The prime minister originally had wanted to put off a discussion of issues like the status of contested east Jerusalem, final borders and the fate of Palestinian refugees until direct talks are launched.

Netanyahu's refusal to budge on east Jerusalem -- whose fate lies at the crux of the Israeli-Palestinian conflict -- defies a U.S. demand to cancel a major new housing project at the heart of the feud. But in confidential talks, he apparently offered enough steps to prompt U.S. Secretary of State Hillary Rodham Clinton to call them "useful and productive" and dispatch an envoy back to the region this week.

U.N. chief Ban Ki-moon, who was touring the Gaza Strip on Sunday, told reporters that Netanyahu would be meeting with President Barack Obama while in the U.S. this week. The prime minister's office had no immediate confirmation; Netanyahu takes off for Washington later Sunday to address the annual conference of the pro-Israel lobby in the U.S.

Ban wants a nearly three-year blockade of Gaza lifted and said Israel's recent opening of Gaza's borders to allow in window frames and other supplies to complete a 151-apartment U.N. housing project in southern Gaza was "a drop in a bucket of water."

The blockade causes "unacceptable suffering" and "undercuts moderates and encourages extremists," he said after visiting the project in the Khan Younis refugee camp. "My message to the people of Gaza is this: The United Nations will stand with you, through this ordeal."

Most of the 15,000 homes destroyed or damaged during Israel's war in Gaza, which ended in January last year, have not been repaired because of the blockade. Israel launched the war after years of militant rocket fire from Gaza on its southern communities.

The blockade was imposed in 2007 after Hamas violently took over the territory from its rivals in the Fatah movement of Palestinian President Mahmoud Abbas.

The Israeli military, meanwhile, said troops in the West Bank shot dead two Palestinians who tried to stab a soldier. A third Palestinian died of a gunshot wound inflicted by a soldier at a demonstration the day before.

Israeli construction in east Jerusalem is such a fraught issue because it challenges Palestinian claims to that sector of the city as a future capital. The announcement of a major new building project during Vice President Joe Biden's visit earlier this month insulted Washington and provoked the biggest rift between the two allies in decades.

That rift has put Netanyahu in a particularly difficult bind, forcing him to find a formula that would repair ties with the U.S. without antagonizing his hawkish coalition partners, who vehemently oppose sharing sovereignty in Jerusalem.

Netanyahu's office denied reports that he promised to slow construction in the city's eastern sector.

"Our policy on Jerusalem is the same as that of all previous Israeli governments in the past 42 years and it hasn't changed," he told his Cabinet at the start of its weekly meeting. "As far as we are concerned, building in Jerusalem is like building in Tel Aviv. We made this clear to the U.S. administration."

But Cabinet ministers said in practice, construction will be restricted -- as it has been in the West Bank since November, when Netanyahu officially agreed to do so under heavy U.S. pressure.

Israel annexed east Jerusalem after capturing it in the 1967 Mideast war. The international community does not recognize the annexation and considers the Jewish construction in east Jerusalem to be settlement building.

Netanyahu also told his Cabinet that the U.S.-brokered talks with the Palestinians would include a discussion of the main issues between them, but added that a "real resolution" of the conflicts could only be achieved in direct talks.

These issues include the status of Jerusalem, final borders and the fate of Palestinian refugees from the war around Israel's 1948 creation.

The row over east Jerusalem construction held up the start of the indirect talks, which are to be brokered by Washington's special Mideast envoy, George Mitchell.

Mitchell is to meet with Netanyahu before the prime minister sets off for Washington and on Monday with Abbas.