Palestinians have already broken off peace talks with Israel for refusing to halt construction in East Jerusalem and the West Bank. They claim these areas, which Israel captured in 1967, and the Hamas-ruled Gaza Strip for a future state. Jewish settlement construction has angered the United States as well.

Jerusalem officials confirmed they were aware of the plan, but would not say when the city's planning committee, which needs to approve such projects, would vote on it.

"Jerusalem City Hall continues to advance construction for Arabs and Jews alike according to the master plan," the spokesman's office said. "New construction in Jerusalem is necessary to the development of the city."

Israel occupied and annexed East Jerusalem after the 1967 Mideast war and claims the entire city as its capital. The international community has never recognized the annexation, and considers Israeli housing developments in East Jerusalem illegal settlements. The Palestinians hope to make East Jerusalem their capital.

The latest plan, to build 1,400 apartments in the area of Gilo, is being promoted by the Jerusalem Development Authority, a joint corporation of the Israeli government and the Jerusalem municipality. Gilo is a sprawling development of some 40,000 people on Jerusalem's southern edge, built on lands captured in 1967.

Although construction would likely not begin for years, the Palestinians said the new plan undermined hopes for peace. "This proves our point that the Israeli government has chosen settlements and not peace," said senior Palestinian official Saeb Erekat.

He urged the US "to hold the Israeli government fully responsible" for the breakdown in peace talks and to support an upcoming Palestinian initiative to get a UN Security Council condemnation of Israeli settlement construction.

Erekat said Palestinian officials would be meeting with European leaders, whom they hope to persuade to support the move at the UN.

Word of the plan also elicited a new round of US condemnation. "We find unilateral actions of this sort to be counterproductive in efforts to get sides to negotiate on the core issues," US Embassy spokesman Kurt Hoyer said.

Last week, the US harshly criticized Israel for demolishing a historic hotel in an Arab neighborhood of East Jerusalem to make way for 20 apartments for Jews.

If approved, the Gilo project would create territorial contiguity between the Gush Etzion settlement bloc south of Jerusalem and the city itself, said Meir Margalit, a Jerusalem councilman from Meretz Party.

"I hope (the plan) will roil the Americans and shake them out of their coma," Margalit said.