'We didn't discuss Jerusalem in talks with Palestinians'

An Israeli source on Thursday denied reported claims by an American diplomat that the future status of Jerusalem is on the negotiating table in talks with the Palestinians.

The head of the American consulate in Jerusalem, Jack Walles, was quoted earlier Thursday by a Palestinian newspaper as saying that Israel has agreed to discuss the future status of Jerusalem in its peace talks with the Palestinians.

The Israeli source, who is linked to the negotiations, said Israel was surprised by Walles' comments, which go against an understanding shared by all parties about disclosing details of the talks.

The source said that there has been no discussion as of yet about the status of Jerusalem.

The U.S. State Department on Thursday also denied the report that Jerusalem has been the subject of discussion between Israel and the Palestinians.

"A senior U.S. official who participated in the discussions denies that the Israeli side, led by chief negotiator, Foreign Minister Livni, has been willing to negotiate concerning Jerusalem," read part of the U.S. statement.

The statement also addressed the subject of borders, saying "The U.S. government has not taken a position on borders. While the discussions between the parties are confidential, we can state that the parties have not in any way prejudiced long-held views on borders."

Walles, the U.S. Consul General in Jerusalem, told the Palestinian daily Al-Ayyam that U.S. Secretary of State Condoleezza Rice made clear to both sides that the basis for negotiations remains an Israeli withdrawal to the 1967 cease-fire lines, including East Jerusalem.

Walles told Al-Ayyam that both sides agreed on this point as well as the necessity for border adjustments that will be acceptable to both sides.

The State Department comment, however, said the "Secretary participated in the negotiations in a way that respected the Israeli position."

When asked about accusations that Israel's settlement construction in the territories has gained momentum since the Annapolis peace conference in November 2007, Walles said the U.S. has witnessed minimal progress in the removal of illegal outposts and a freeze on settlements despite Israel's commitments as agreed to in the road map.

The diplomat said Israel has expanded settlement construction since the conference.