Israel's housing minister will approve next week the construction of hundreds of homes in West Bank settlements, a political ally of Prime Minister Ehud Olmert said on Wednesday, adding new tensions to peace talks between Israel and Palestine.

The announcement by the Shas religious party, a hardline member of the government, came hours before US President George W. Bush was due to arrive in Israel, in part to nudge Israel and the Palestinians to negotiate a peace deal. A spokesman for Housing Minister Zeev Boim denied the announcement, but did not rule out construction in the Betar Illit settlement at a later date.

The planned construction reported by Shas would be on land the Palestinians want for a future state and could make it even harder for Palestinian President Mahmoud Abbas to convince his people that diplomacy, not violence, would win them a state. A top Palestinian negotiator accused Israel of acting in bad faith.

Shas leader Eli Yishai told Israel Radio that construction would be allowed in the Betar Illit settlement near Occupied Jerusalem.

He said, "I am happy that ... they will approve the construction." He did not dispute the radio station's account that Olmert himself had pledged to allow the construction of hundreds of apartments to proceed.