Israel has announced plans to build over 1,000 new homes on land the Palestinians claim for a future state.

The announcement came just hours after US Secretary of State Condoleezza Rice left the region following a peacekeeping mission in which she called for Israeli settlement activity and expansion to stop.

Jerusalem's city hall announced its plan to construct 600 new apartments in the east Jerusalem neighborhood of Pisgat Zeev, and an ultra Orthodox Jewish party said Prime Minister Ehud Olmert promised to build 800 additional homes in one of Israel's largest West Bank settlements, Betar Illit.

The US has been urging Israel to halt construction in East Jerusalem and the West Bank, but earlier on Monday, Israeli Prime Minister Ehud Olmert pledged that Israel would build in East Jerusalem and heavily Jewish areas of the West Bank, land Israel expects to keep in a final peace agreement.

Ehud Olmert is Israeli Prime Minister.

"All the reports of dramatic construction projects in the territories are not true, and it's not true that we're building in violation of commitments that were made, we are not building new settlements and not confiscating any new land,"

Olmert insists that the building will not disrupt peace negotiations.

The US-backed proposal calls on Israel to freeze all settlement activity, including in existing settlements.

In the past, Israeli construction projects in the disputed areas have sparked a series of crises in the peace negotiations, provoking the Palestinians at one point to suspend talks.

Palestinians insist that construction on contested lands is the greatest obstacle to peace.