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Prime Minister Benjamin Netanyahu's government has pledged to halt West Bank settlement construction once peace talks with the Palestinians are renewed, President Shimon Peres said on Sunday during an official visit to Egypt.

"The minute we shall start to negotiate there won't be new settlements, there won't be confiscation of land," Peres said at a joint news conference in Cairo with Egyptian President Hosni Mubarak, adding that the settlements issue was being blown out of proportion.

"Unfortunately, it's a marginal issue; it is some building of houses that became a central issue for the wrong reasons. My answer is even this issue can be settled by negotiations and agreement," Peres said, calling for a swift restart to talks.

During the press conference, Peres also said that Israel and the Palestinians are able to bridge their differences and reach a peace agreement.

Mubarak emphasized during their talks that the future of Jerusalem, which both Israelis and Palestinians claim as their capital, was an issue of concern for the entire Islamic world.

"I expressed my concern to President Peres that peace talks have not progressed since our last meeting in July and that Egypt is looking forward to an Israeli response, such as halting the building of settlements in east Jerusalem," he said.

Mubarak urged Israel to take "courageous decisions" to push forward peace.

"We want an end to settlement in occupied lands including East Jerusalem and to resume the negotiations about all the issues on the final status, from where they stopped," he said.

"I say peace is still possible. The need is growing for the political will from Israel's side that is conscious of the regional situation and realizes the dangers of losing the peace opportunity and that it [should] take courageous decisions."

Israeli government sources said prior to the meeting that it had nothing to do with a breakthrough in a deal for the release of kidnapped soldier Gilad Shalit, and would deal with the peace process and other bilateral issues.

Following the meeting at the presidential palace, Mubarak was scheduled to host Peres for lunch together with Egyptian political and military leaders. Peres is expected to return to Israel Sunday evening.

Meanwhile, Mubarak on Saturday accused Israel of undermining the peace process, the Kuwait News Agency reported.

"You are placing new obstacles in the path to peace through your call to recognize the Jewish character of the state, to negotiate on interim borders for the Palestinian state and ruling out Al-Quds from the final status negotiations," Mubarak was quoted as saying in his address to mark a new legislative term.

The Egyptian leader also urged Israel to lift the siege of Gaza and to answer calls for peace "within a specified time frame and [with] clear guarantees."

Egypt, which has been working to mediate reconciliation between Palestinian factions Hamas and Fatah, has not lost hope, he said.