Israel disclosed plans on Sunday to build nearly 900 new homes for Jews in disputed east Jerusalem, adding new turmoil to peace talks already troubled by Prime Minister Ehud Olmert's corruption probe.

Palestinian Prime Minister Salam Fayyad, a leading voice of Palestinian moderation, accused Israel of "trampling" on peacemaking, which resumed just six months ago after a seven-year breakdown.

Housing Minister Zeev Boim notified Israel's Cabinet at its weekly meeting that he planned to build 763 apartments in Pisgat Zeev and 121 in Har Homa, large Jewish neighborhoods Israel built after capturing and annexing Jerusalem's eastern sector following the 1967 Mideast war.

The fate of Jerusalem lies at the crux of the Israeli-Palestinian conflict. The Palestinians hope to make east Jerusalem the capital of their future state, and they say continued Israeli construction threatens that goal and makes it difficult to win public support for peace talks.

The contentious construction "strips the political process of any meaningful content," Fayyad told The Associated Press. "I am really at a loss trying to really find reasons to be encouraged or optimistic."

Palestinian negotiator Saeb Erekat said Palestinian President Mahmoud Abbas planned to lodge a "major protest" with Olmert when the two meet Monday, ahead of the Israeli leader's three-day trip to Washington.

"At a time when we decide to go and meet with Mr. Olmert and continue with the negotiations despite all the political difficulties in Israel, this should not have been done today," Erekat said.

Israel has been negotiating with Abbas' moderate government in the West Bank, while its military battles militants in the Hamas-ruled Gaza Strip who attack southern Israel with rocket and mortar fire almost daily.

Egypt has been trying for months to broker a truce between Israel and Hamas. On Sunday, Israeli government officials said Israel was not prepared to sign off on Egypt's proposed cease-fire deal because it wants more details about the commitments Hamas has agreed to make.

Asked why he chose to announce the east Jerusalem construction bids at a time of troubled peace talks and uncertainty about Olmert's political survival, Boim cited the annual "Jerusalem Day" celebration. At sundown, Israelis were to begin celebrating Israel's capture of east Jerusalem and the reunification of the city, which had been riven into Israeli and Jordanian sectors for the preceding 19 years.

Polls show a majority of Israelis do not support shared sovereignty over the city, holy to Islam, Judaism and Christianity. So Israel's intention to cement its presence in the eastern sector would generally be well received by the public.

Some 180,000 Jews lives in east Jerusalem and 270,000 live in the West Bank, most in three major settlement blocs.

Israel insists it is building only in places it intends to keep under a peace accord. Although Israel committed under the 2003 "road map" peace plan to freeze all settlement activity, Israel considers east Jerusalem to be exempt from that obligation because of the annexation, which has not been recognized internationally.

The U.S. has bolstered the Israeli position by stating publicly that it expects a peace accord to accommodate the large Israeli presence in the settlement blocs.

At the start of Sunday's weekly Cabinet meeting, Olmert made no mention of the east Jerusalem construction. Looking gaunt and with heavy bags under his eyes, he was similarly quiet about the corruption investigation that has engulfed the political scene and threatens to ignominiously end his three-decade political career.

Olmert has weathered four previous police investigations since he became prime minister two years ago.

But the latest scandal appears to be the most serious after a key witness testified last week that he relayed hundreds of thousands of dollars in cash to the Israeli leader, at times to cater to his love of the high life. The damaging testimony has unleashed public scorn an open rebellion from onetime political allies.

Olmert has denied any wrongdoing and said he would resign only if indicted.

Polls indicate that if elections were held today with Olmert heading his party, opposition leader Benjamin Netanyahu would easily sweep to power. Netanyahu takes a hard line against the Palestinians, and his accession to power could deal a major setback to peace efforts.

Olmert's trip to Washington is timed to coincide with a major meeting of the pro-Israel lobby group AIPAC. Olmert also will meet with U.S. President George W. Bush and speak with presidential hopefuls.

He told his Cabinet that in the U.S., he would discuss matters of strategic importance to the Israeli people - matters, he said, "that are at Israel's very core."

Generally "core issues" refer to peacemaking with the Palestinians and the Iranian nuclear threat. Israel gives no credence to Iranian claims that its nuclear program is peaceful, and is convinced Tehran is out to build bombs.