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Prime Minister Ehud Olmert is scheduled to meet Palestinian President Mahmoud Abbas tomorrow in an attempt to solve the so-called settlement crisis that has plagued negotiations since the Annapolis summit late last month.

The Palestinians are upset over a tender by the Housing Ministry for the construction of 307 housing units in the southeast Jerusalem neighborhood of Har Homa, on the Palestinian side of the Green Line.

In the framework of the mutual accusations between the two parties, the Palestinians are trying to portray Israel as intransigent in its refusal to stop its settlements while trying to establish a fait accompli.

Official sources in Jerusalem say the Har Homa imbroglio is the result of a decision by low-ranking government bureaucrats in the Housing Ministry. They say that Olmert was not informed of the decision in advance, but on the international front, these explanations do not seem to be enlisting much support.

Moreover, the Har Homa affair exposed the differences in the perceptions that both parties adhere to. As far as Israel is concerned, the neighborhood is an integral part of unified Jerusalem, and not part of the territories.

Construction at Har Homa is not subject to the same bureaucratic maze that any construction in the territories - be it a house, shack or electricity line - must endure before it is approved.

The Palestinians and their supporters in the international community do not make that distinction. To them, any Israeli construction east of the Green Line, which was Israel's border before the 1967 Six-Day War, is an illegal settlement. They treat construction in East Jerusalem much the same as they treat construction in the settlement blocs in the West Bank.

To the Palestinians, construction in the territories is an obstacle to peace and an act that jeopardizes the negotiations. In addition, the Palestinians realize that Israel - which is expecting its first visit by U.S. President George W. Bush next month - is at a disadvantage internationally as far as settlements are concerned. Their objective is to dominate the headlines until Bush arrives.

But the problem goes deeper than head-butting in the media. Israel has demanded that the Palestinians fulfill their duties according to the road map plan for peace, which the U.S. devised for both parties. But Israel has failed to meet its own obligations such as the evacuation of settlements, a total freeze on all construction in the territories and allowing the Palestinians to reopen their institutions in East Jerusalem.

Each of these moves carries a political price that could cause Olmert's coalition partners - mainly Shas and Yisrael Beiteinu - to jeopardize his government. Meanwhile, the government is opting for inaction until after Bush's visit.