Israel said Friday that it had sent a message to US Ambassador Richard Jones in Tel Aviv, reassuring him that it will not build a new Jewish neighbourhood in a northern area of occupied East Jerusalem.
Israeli Housing Minister Ze'ev Boim had given the assurance to the US ambassador in person, Israeli government spokesman Mark Regev said.
But a project to build in Har Homa, an existing, controversial Jewish neighbourhood on Jerusalem's southern outskirts, would continue, he told Deutsche Presse-Agentur dpa.
The United States had asked for clarifications about the building projects, which come as Israel and the Palestinians are reviving negotiations after a seven-year freeze in the peace process.
Reports about the construction had caused outrage among Palestinians.
The Israeli Haaretz daily reported earlier this week that Boim, a relative hardliner within Prime Minister Ehud Olmert's Kadima party, wanted to build more than 10,000 new apartments in northern Jerusalem, near an industrial zone known as Atarot and near the Qalandiya checkpoint on the road to the West Bank city of Ramallah.
If built, it would have been the largest Jewish neighbourhood in East Jerusalem, Haaretz said. The Housing Ministry had said it was "examining the feasibility" of the project, but had not yet submitted a formal application for a permit to the Israel Lands Authority. It had cited the urgent need for more housing in Jerusalem, which suffers a shortage, as the reason for weighing it.
Regev said the project in Har Homa was different to that at Atarot because it was not a new settlement. The houses would be built in the existing neighbourhood, he said.
Construction in Har Homa, built on occupied West Bank, first began 10 years ago under former Israeli premier Benjamin Netanyahu of the hard-line Likud party, sparking angry Palestinian protests. Israel rejected the criticism, saying the neighbourhood was built within the Jerusalem municipality boundary on land mostly owned by Jews before it was conquered by Jordan in the 1948 Israeli-Arab war.
The spat over the Har Homa project, and the reported new project in north Jerusalem, have overshadowed last week's first formal Israeli-Palestinian talks.
Those talks were held after Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas agreed in Annapolis, Maryland to make "every effort" to reach a peace deal by late 2008.
Olmet, shortly before Annapolis, pledged not build any new settlements in the West Bank or authorize new land confiscations.
Regev said this meant Israel "we will not outwardly explained existing settlements, and we will not give any special incentives for people to live in settlements."
He denied meanwhile that Israel was holding indirect contacts with the radical Islamic Hamas movement on a truce in Gaza.
"The partner for dialogue is the legitimate government of the Palestinian Authority," he told Deutsche Presse-Agentur dpa, referring to the Ramallah-based "caretaker" government of Acting Premier Salam Fayyad, appointed by Abbas shortly after Hamas' violent take-over of Gaza in mid-June.
Since then, Hamas has become increasingly isolated in the Strip under tight closure over daily rocket-fire at southern Israel. Hamas leader Ismail Haniya, who continues to call himself premier in Gaza despite his dismissal by Abbas, made an unusual call on Israeli television late Tuesday for a truce.
But Regev said that "Israel will not talk to groups that refuse to accept the conditions of the international community, refuse to renounce terrorism and refuse to support reconciliation."
A member of Olmert's security cabinet, however, had earlier said that Israel would be willing to negotiate a truce with Hamas if it made a "serious" offer.
Infrastructure Minister Benjamin Ben-Eliezer, of the leftist coalition Labour Party, told Israel Radio the offer would have to include a complete end to the daily rocket attacks from the strip.
It would also have to include an end to the weapons smuggling through tunnels under the border with Egypt and an immediate resumption of Egyptian-led indirect negotiations on the release of an Israeli soldier held captive in Gaza.
The Israeli military meanwhile withdrew from the central Gaza Strip, after an incursion which left eight militants dead, one of whom died of wounds Friday morning.
Hamas said Israeli troops also killed a ninth Hamas militant in the south of the Strip early Friday, but the Israeli military denied involvement.