The first formal Middle East peace negotiations in seven years got off to a tense start today with the Palestinian Authority demanding a halt to Israeli plans to build settlements on disputed territory.

Palestinian negotiators said the planned construction in the Har Homa neighbourhood in disputed east Jerusalem, along with Israeli military activity in Gaza, threatened to undermine the new peace talks.

"We demanded a complete halt to the settlement-building. We have agreed to meet again, nothing else," negotiator Yasser Abed Rabbo told Reuters after the meeting in Jerusalem.

Fellow Palestinian negotiator Saeb Erekat added: "If you want to restore the credibility of the peace process, the Israeli government must revoke this order."

An Israeli official criticised the Palestinians' complaints, claiming they had cast a shadow over the negotiations.

"We really wanted to see it as a procedural meeting in good spirit. They created a tense atmosphere," he said.

The Israelis, in turn, complained about ongoing rocket attacks by Palestinian militants from the Hamas-controlled Gaza Strip. Militants fired 16 homemade rockets toward Israel early today, causing minor damage and slightly wounding one woman, Israeli officials said.

Israel's army chief today warned that a large military offensive would be needed in Gaza to end the rocket attacks.

Speaking at a conference in Tel Aviv on security issues, Lieutenant General Gabi Ashkenazi said: "We are operating in Gaza on a daily basis. Yesterday we returned from a broad operation (...) this brings a reduction in the ground threat and the firing of rockets but does not stop it. We will come to the point where we will have to carry out the big operation."

Ashkenazi's comments came a day after Israel mounted one of its biggest raids into Gaza since Hamas seized control in June, killing five militants and pushing tanks and armoured cars a mile into the territory. Troops withdrew early today to a buffer zone along the Israeli border.

Ashkenazi said he believed that there was "military value" in repeated strikes on militants but that they probably could not be completely effective in stopping attacks against Israel.

Israel has been mulling a large-scale military operation in Gaza for months, but has made do with limited incursions and air strikes for fear of disrupting the new peace talks.

Hamas, which routed Palestinian president Mahmoud Abbas's Fatah faction in Gaza, has rejected negotiation with Israel, and its grip on the territory could also complicate the new peace talks.

The negotiations were the first since Israel and the Palestinian Authority formally restarted peace talks at an international conference last month in the United States.

The Israeli prime minister, Ehud Olmert, and the Palestinian president, Mahmoud Abbas, set an ambitious target of December 2008 - near the end of George Bush's tenure as US president - to agree a peace deal.