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Prime Minister Benjamin Netanyahu's aides yesterday repeated that Israel would not restrict building in Jerusalem. However, Housing and Construction Minister Ariel Atias (Shas ) on Wednesday admitted, in a Knesset debate, that construction in the capital has in fact been suspended for almost six months.

The Palestinian Authority is demanding a freeze on construction in East Jerusalem as the main precondition for direct peace talks with Israel. But Netanyahu is refusing to make a public announcement about the construction freeze, and has said repeatedly that Israel would not limit construction in Jerusalem and there were no understandings on the issue with the White House.

"There's no change in the planning and building policy in Jerusalem and it remains as it has been for the past 40 years," an aide in Netanyahu's bureau said last night.

Atias spoke in the Knesset on Wednesday in response to a motion for the agenda by MK Uri Ariel (National Union ). "The prime minister is talking loftily about Jerusalem but de facto there's a freeze in Jerusalem," Ariel said.

"Following the prime minister's instruction, the Jerusalem District [planning and building] committee only deals with trivia such as closing balconies," he said.

This is holding up sales of more than 1,000 housing units, some in East Jerusalem neighborhoods, Ariel added.

Atias confirmed most of Ariel's statement. "Everything's on hold," he said. "The planning continues. It is being submitted ... and not being discussed at the moment," Atias said, blaming the interior minister, his Shas party rival Eli Yishai, who is in charge of planning and construction in Jerusalem.

Atias said that apartments have not been marketed in Jerusalem for almost half a year - long before Vice President Joe Biden's visit and the crisis over the Ramat Shlomo construction. "The last time apartments were marketed in Jerusalem was December 2009," he said.

Officials close to Yishai said in the last few days that the minister instructed the Jerusalem district committee to bring any plan with possible implications regarding the peace talks to his approval. The ministry is drafting new regulations for approving building plans in East Jerusalem, Haaretz has learned.

Middle East envoy George Mitchell met Netanyahu yesterday for the second time in two days, ahead of the expected start of indirect Israeli-Palestinian peace talks. However neither side commented on the details of the meeting.

Mitchell also met Defense Minister Ehud Barak yesterday and is due to meet President Shimon Peres, Foreign Minister Avigdor Lieberman and Opposition leader MK Tzipi Livni today. He is scheduled to meet PA President Mahmoud Abbas in Ramallah this evening.

The United States hopes Israel and the Palestinians will resume peace negotiations in an indirect format in the coming days, a U.S. spokesman said on Wednesday, after the first, three-hour meeting between Netanyahu and Mitchell.

The American administration expects the PLO executive committee to confirm the opening of the proximity talks with Israel tomorrow. Then the U.S. is expected to make an official announcement on the opening of the indirect negotiations.

Palestinian sources said that despite the Palestinians' agreement in principle to the talks, Abbas will not give Mitchell a formal approval to start the proximity talks.

The Arab League endorsed Abbas' participation in the talks last Saturday, and he is awaiting formal approval from the PLO's Executive Committee tomorrow, said his spokesman, Nabil Abu Rudeineh.