Prime Minister Benjamin Netanyahu paid a visit to the Jerusalem neighborhood of Gilo on Tuesday in a defiant prelude to talks with the European Union's top diplomat, who has condemned Gilo's expansion.

Israel issued a detailed plan last week for 797 additional homes in Gilo, an urban complex built in a part of the West Bank that it captured in a 1967 Middle East war and later annexed to Jerusalem.

"United Jerusalem is Israel's eternal capital, we have a full right to build in it," Netanyahu said during a tour of Gilo, a day before he was due to meet Catherine Ashton, the EU's high representative for foreign affairs.

In a statement reflecting long-standing EU policy, Ashton said on Friday she deeply regretted the planned expansion of Gilo, where some 40,000 Israelis live.

"Settlements are illegal under international law and threaten to make a two-state solution impossible," she said, referring to more than two decades of efforts to negotiate the creation of a Palestinian state alongside Israel.

Israel considers all of Jerusalem - including the annexed eastern sector and nearby settlements like Gilo - as its capital, a position not accepted internationally.

"We have built Jerusalem, we are building Jerusalem and we will continue to build Jerusalem. This is our policy and I will continue to back building in Jerusalem," Netanyahu said in Gilo.

The visit by the right-wing Likud party leader was likely to play well with his core pro-settlement constituency ahead of a parliamentary election on Jan. 22.

Ashton, who began a visit to the region on Monday, was due to meet Netanyahu and other Israeli leaders in Jerusalem on Wednesday and also to see Palestinian President Mahmoud Abbas.

The British diplomat represents the United States, China, Russia, Britain, France and Germany in their on-and-off talks with Iran over its nuclear program.

Israel sees the program, which it and Western powers suspect to be aimed at creating a nuclear weapons capability, as a direct threat. Iran denies Israel's right to exist but says the program is purely peaceful.