Prime Minister Ehud Olmert has approved the renewed construction of hundreds of an estimated 750 new homes in the West Bank settlement of Givat Ze'ev near Jerusalem, the Housing Ministry said Sunday.

The project approved for the Agan Ayelot neighborhood of Givat Ze'ev drew criticism from the Palestinian Authority over Israel's commitment to the peace process.

The prime minister's spokesman said the project was in line with the state's current policy on construction in existing settlements.

"The project was approved by previous governments, and Olmert approved its resumption because it meshes with government policy," he said.

"It is consistent with our long-standing position that building within the large settlement blocs, which will stay a part of Israel in any final status agreement, will continue," Regev said. "Construction outside the settlement blocs has been frozen."

Boim said Sunday that, "The addition of hundreds of housing units is part of a policy aimed at meeting demand and keeping prices level, while addressing the demographic needs of Jerusalem. I intend to continue and work towards this policy in order to strengthen Jerusalem."

Palestinian negotiator Saeb Erekat said the decision to build new housing in Givat Zeev raised doubts about Israel's commitment to peace talks.

"It seems to me the Israelis are determined to put a stick in the wheel of negotiations," he said. "It will undermine the U.S. effort to revive the negotiations."

He noted the decision came just days before a U.S. envoy, Lt. Gen. William Fraser III, arrives in the region for his first joint meeting with Israelis and Palestinians. President George W. Bush appointed Fraser in January to monitor implementation of the U.S.-backed road map peace plan - which among other things calls on Israel to freeze all settlement activity and the Palestinians to disarm militants.

The Housing Ministry and Israel Lands Administration (ILA) started marketing lots for the housing units in 1999, but stopped near the end of 2000 after the eruption of the Second Intifada.

As a result of high demand for the housing, along with the relative calm in the security situation, the contractors who had won tenders to develop the project had asked the Housing Ministry to allow them to renew construction.

Israel Radio reported that Shas, a key partner in the government coalition, had threatened to bolt the government unless the construction was approved.

Housing Minister Ze'ev Boim held numerous meetings regarding the contractors' request, including with Olmert. Following the Har Homa construction a few moths ago, Olmert had asked Boim to update him regarding similar projects, in order to make decisions and strategize how to explain them to the international community.

Olmert and Boim approved the renewal of construction in Givat Ze'ev, and in the first stage of the project 200 housing units will be built.