Prime Minister Ehud Olmert has approved new construction in a West Bank settlement outside Jerusalem, a Construction Ministry official said Sunday, just days after a Palestinian man killed eight Israelis at a religious seminary.

The news immediately drew Palestinian condemnation and came just days before a U.S. general was due in the region to monitor progress in troubled peacemaking.

Construction Ministry spokesman Eran Sidis said a project for 546 apartments in the Givat Zeev settlement has proceeded in fits and starts since 1999. With Olmert's approval, those apartments will be completed and the ministry will soon market more than 200 more, bringing the project to 750 units, Sidis said.

The project was approved by previous governments, and Olmert approved its resumption because it meshes with government policy, government spokesman Mark Regev said.

It "is consistent with our long-standing position that building within the large settlement blocs, which will stay a part of Israel in any final status agreement, will continue," Regev said.

Construction outside the settlement blocs has been frozen, he added.

Attacks upset talks

Palestinian attacks on Israel and Israeli retaliatory strikes, along with continued Israeli settlement construction, have upset U.S.-backed peace talks. The talks, resumed last November after a seven-year breakdown, aim to reach a final peace agreement by the end of the year.

U.S. Secretary of State Condoleezza Rice last week persuaded the Palestinians to resume talks, which they had suspended to protest an Israeli military operation against Gaza rocket squads that killed more than 120 Palestinians. The talks suffered another blow with Thursday night's seminary shooting.

Israeli officials said privately over the weekend that negotiations would proceed despite the attack on the seminary.

Palestinian negotiator Saeb Erekat said the decision to build new housing in Givat Zeev raised doubts about Israel's commitment to peace talks.

"It seems to me the Israelis are determined to put a stick in the wheel of negotiations," he said. "It will undermine the U.S. effort to revive the negotiations.

Monitor 'road map' peace plan

Erekat noted the decision came just days before a U.S. envoy, Lt.-Gen. William Fraser III, arrives in the region for his first joint meeting with Israelis and Palestinians.

President George W. Bush appointed Fraser in January to monitor implementation of the U.S.-backed "road map" peace plan — which among other things calls on Israel to freeze all settlement activity.

Givat Zeev is in one of the three major settlement blocs that Israel intends to retain in any peace agreement. The Palestinians have expressed willingness to consider swapping land where settlement blocs stand for equal amounts of Israeli land.

An overwhelming majority of the 270,000 West Bank settlers live in the major blocs, and an additional 180,000 Israelis live in Jewish neighborhoods Israel built in Jerusalem after capturing and annexing it in 1967. Israel does not consider the east Jerusalem neighbourhoods to be settlements, but the Palestinians and international community do.

Separately, an Israeli soldier wounded by Gaza militants in a border ambush on Thursday died Sunday of his wounds, the military said. He was the second soldier to die as a result of the attack, and the fourth soldier killed in Gaza violence this month.