The Palestinians criticized an Israeli decision to push forward plans for 625 new homes in east Jerusalem, saying Thursday the project shows Israel has chosen "settlements and not peace."

Israel's Interior Ministry confirmed Thursday that the new housing project in Pisgat Zeev, a sprawling area of 50,000 residents, was permitted to proceed by a district planning committee late last month. Further approval is required at the district and national levels, and actual construction would not begin for at least two years.

Such construction in Jerusalem's eastern sector lies at the heart of a current impasse in Israeli-Palestinian peace talks. The Palestinians have refused to resume negotiations without a full construction freeze that would include the West Bank and east Jerusalem, the part of the city they want for the capital of a future state. Israelis consider Pisgat Zeev a neighborhood, while the Palestinians view it as an illegal settlement.

Israel, which sees all of Jerusalem as its own capital, has continued approving new projects in the city's eastern sector even as U.S. mediators scramble to broker a compromise that would allow both sides to return to the talks.

"It seems obvious that we have received the Israeli answer to the American attempts to stop settlements," Palestinian negotiator Saeb Erekat said. Israel has chosen "settlements and not peace," he said. Israeli government spokesman Mark Regev declined to comment.

Under U.S. pressure, Israel declared a limited 10-month slowdown on new construction late last year, aiming to draw the Palestinians to the negotiating table. The Palestinian leadership agreed to begin talks only weeks before that moratorium expired, and pulled out of negotiations when the curbs ended.

The current U.S. efforts center on convincing Israel to temporarily renew the restrictions. The U.S. and Israeli governments have been wrangling for weeks over the terms of such an extension. The Palestinians say continued Israeli construction in territories they claim is a sign of bad faith.

The leader of the Palestinian government in the West Bank, President Mahmoud Abbas, met Thursday with Daniel Rubinstein, the U.S. consul general in Jerusalem. Abbas' spokesman, Nabil Abu Rdeneh, said there was no breakthrough, but that the Americans would "continue their deliberations." He charged the Israeli side with "stalling and wasting time."

Israel has been building in east Jerusalem since capturing the area along with the rest of the West Bank in the 1967 Mideast war. Today, some 200,000 Israelis live there, alongside 250,000 Palestinians.

An additional 300,000 Israelis live elsewhere in the city. Past peace plans have proposed leaving the Jewish neighborhoods under Israeli sovereignty if the city is divided.

In the Gaza Strip, which is ruled by the militant Hamas group, Israeli soldiers killed two gunmen from the Islamic Jihad organization in an overnight clash along the Gaza-Israel border fence, the Israeli military said. Islamic Jihad did not immediately confirm the deaths.

Violence has dropped in Gaza since the end of Israel's offensive in the territory in early 2009, but militant attacks on the border and sporadic rocket fire have continued.