Reporting from Jerusalem— Israel gave preliminary approval Tuesday to the construction of about 1,100 new housing units in East Jerusalem, brushing aside pleas from U.S. and European diplomats to delay the controversial project as they attempt to restart peace talks.

The Interior Ministry's green light will clear the way for a significant expansion of the Jewish development of Gilo, on land seized by Israel during the 1967 Middle East War.

Critics said the move is a setback for the Mideast "quartet" —the United States, United Nations, European Union and Russia — which last week issued a call for Israelis and Palestinians to resume direct talks within the next month.

Neither side has formally responded to the quartet, but chances of a return to the negotiating table were seen as slim even before the Gilo expansion was announced.

Palestinians are demanding that Israel halt all housing construction in the West Bank and East Jerusalem. Israeli Prime Minister Benjamin Netanyahu has refused, saying Palestinians squandered the opportunity for talks offered by a partial construction freeze he imposed in the West Bank last year.

"Mr. Netanyahu is responding to the quartet with 1,100 noes," said Palestinian negotiator Saeb Erekat. "He's determined to torpedo the two-state solution and the peace process."

In an interview with the Jerusalem Post published Tuesday, Netanyahu ruled out another construction freeze and defended the Gilo expansion.

"We build in Jerusalem. Period," he said. "The same way Israeli governments have been doing for years, since the end of the 1967 war. We build in Jewish neighborhoods. The Arabs build in Arab neighborhoods. That is the way the life of this city goes on and develops for its Jewish and non-Jewish residents alike."

Palestinians, who are to announce their response to the quartet plan Wednesday, also called on the Obama administration to reconsider its opposition to the U.N. membership application they submitted Friday. The U.S. has vowed to veto the application in the Security Council, but Palestinians say U.N. membership would bolster their pursuit of statehood.

"The application is the only way to preserve the two-state solution," Erekat said.

The Gilo project has been a touchy issue for the Obama administration. In 2009, President Obama singled out a previous expansion in Gilo for criticism, saying settlement construction made Israel less secure and embittered Palestinians.

Last week's quartet statement called on Israelis and Palestinians to refrain from steps that might increase distrust.

"We believe that this morning's announcement by the government of Israel approving the construction of 1,100 housing units in East Jerusalem is counterproductive to our efforts to resume direct negotiations between the parties," Secretary of State Hillary Rodham Clinton said Tuesday.

The Gilo project will expand the development to the south by several hundred yards, absorbing additional land claimed by Palestinians, Jerusalem attorney and anti-settlement activist Daniel Seidemann said. The expansion will include government buildings, a school and an industrial park.

"This expands the existing footprint of Gilo and changes the borders," and makes peace talks less viable, he said.

"The quartet is out there trying to find a way to get these kinds of events under control so negotiations can resume," Seidemann said. "The U.S., EU and everyone all engaged Israel [to stop the approval] and Israel did it anyway."

Final approval for the project is expected after a 60-day public comment period.

A spokesman for Jerusalem Mayor Nir Barkat said the city's housing crunch makes new construction vital.

"The city of Jerusalem will continue to support the expansion of residential neighborhoods for all the residents to meet its affordable housing needs," said Stephan Miller, Barkat's spokesman.

edmund.sanders@latimes.com

Times staff writer Paul Richter in Washington contributed to this report.