French Foreign Minister Bernard Kouchner on Friday criticized ongoing Israeli settlement construction, and added that Israel can do more to lift restrictions on Palestinian movement.

"Nothing justifies the settlement expansion which constitutes an impediment to peace, as well as an obstacle obstructing the development of the Palestinian economy," Koucher told delegates at the closing session of a Palestinian investors' conference in Bethlehem.

Government spokesman Mark Regev said settlement construction continues only in Jewish neighborhoods of East Jerusalem, which Israel does not consider settlements, and inside large West Bank settlement blocs that Israel intends to retain in any final peace accord.

Kouchner also said Israeli restrictions on Palestinian mobility remain significant. "Israel should and can exert more efforts [to ease the restrictions]without endangering security," he said.

Regev said that was what Israel was trying to do. "That's our challenge: To take down roadblocks, to try to create greater movement and access for Palestinians while maintaining security," he said.

The French foreign minister met on Thursday with senior Israeli officials, including Prime Minister Ehud Olmert, Defense Minister Ehud Barak and Foreign Minister Tzipi Livni before heading to the West Bank for talks with the Palestinian Authority.

Kouchner said late Thursday after talks with Palestinian President Mahmoud Abbas's chief negotiator Ahmed Qureia, in Ramallah that not enough progress had been made since Israel and the Palestinians launched peace talks in November.

He said, however, that he was was hopeful a Gaza truce could provide momentum for talks with the Palestinian Authority.

"There is this good atmosphere ... in Lebanon, as well as with Syria and also in Gaza," Kouchner said, adding that he believed he had seen goodwill among Israeli and Palestinian negotiators.

Livni told Kouchner during their talks eatlier Thursday that world governments must shun Hamas, adding that the foiled suicide bombing at a Gaza crossing that day showed that the Islamist movement was not interested in improving the plight of Palestinians.

Kouchner said in a radio interview Monday that France had been in touch with Hamas over several months, but the contacts did not amount to relations or negotiations. He did not detail the substance of those contacts with Hamas, which rejects Israel's existence.

Israel, the United States and the international community have listed Hamas as a terrorist organization, and Washington delivered a swift rebuke after Kouchner's revelation, with the State Department saying the contacts were not wise or appropriate.