Israeli and Palestinian officials negotiating an end to the decades-old conflict between the sides have failed to make any progress on settling the issues that have been dividing them.
The second round of talks held in Jerusalem on Monday, since the sides announced a revival of peace talks last month at Annapolis, Maryland, was overshadowed like the first round by a row over Israeli settlement activity in the West Bank.
This issue is likely to be raised during a meeting expected later this week between Israel's Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas.
Palestinians are angered by Israeli plans to build in Har Homa, a controversial Jewish neighbourhood on the southern outskirts of Jerusalem.
The Israeli housing ministry published a tender on December 4 for the construction of 307 new homes in Har Homa.
According to its proposed budget for 2008, it plans to build more, some 500, as well as some 240 new apartments in the nearby Jewish settlement of Ma'aleh Adumim.
"Israel has to decide between building settlements and going on the road to peace," chief Palestinian negotiator Saeb Erekat said on Monday morning. "It cannot have both."
He said that if Israel responded to Palestinian and international demands to halt settlement activities by allocating more money for settlements, then "What is the use of negotiations?"
Israeli ministers have said that Har Homa is within Jerusalem's municipal boundary and therefore an "integral part" of the city.
Israel also claims Ma'aleh Adumim as part of Jerusalem and counts it among key settlement blocs it wants to keep as part of a final peace deal with the Palestinians.
Israel captured Arab-populated East Jerusalem in the 1967 Middle East War, redrew the municipal boundaries and built new neighbourhoods.
Palestinians claim East Jerusalem as the capital of their future state, and its future is one of the core issues the negotiators have to tackle if they are to meet the deadline, suggested at Annapolis, of reaching a peace treaty in 2008.