JERUSALEM (AFP) - An Israeli commission has approved the building of 920 new homes in occupied east Jerusalem, the municipality said on Wednesday, in a new blow to peace talks with the Palestinians.

"The district commission has approved for construction 920 housing units in Har Homa," a statement said, referring to a neighbourhood in east Jerusalem, known in Arabic as Jabel Abu Ghneim, that has more than 10,000 residents.

Israel occupied and annexed the eastern half of the city after the 1967 war in a move not recognised by the international community or the Palestinians, who have demanded it as their capital in recently revived peace talks.

Israel pledged to halt all settlement activity in the occupied West Bank when peace talks were revived at a conference in the United States last year.

But it considers the whole of Jerusalem its "eternal, undivided" capital and has insisted it will continue to build in both the city's eastern sector and in the larger West Bank settlement blocs that it intends to keep in any deal.

Little progress has been made in the negotiations so far, with the thorny settlements issue one of the major bones of contention.

LIKE IT?  LET OTHERS KNOW