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Israel will not construct any new settlements but will continue building in existing settlement blocs and Jerusalem, Prime Minister Ehud Olmert told visiting North American Jewish leaders yesterday.

Speaking in Jerusalem to a gathering of the Conference of Presidents of Major American Jewish Organizations, Olmert said that, "Jerusalem holds a special place and in its Jewish areas reality on the ground will change in the coming years.

"Not one of my critics built more than me in Jerusalem or contributed more to its development," Olmert, a former mayor of the capital, added.

"It has been discussed and agreed, between me and Palestinian Authority Chairman Abu Mazen [Mahmoud Abbas] that Jerusalem is an important and sensitive issue. We will not begin negotiating on this sensitive issue, which may result in a failure in the talks. We will delay the handling of Jerusalem to a later stage," Olmert said.

On the matter of abducted Israel Defense Forces soldier Gilad Shalit, Olmert said that he does "not share in the optimism."

Refering to the two IDF reservists, Ehud Goldwasser and Eldad Regev, kidnapped by Hezbollah in 2006, Olmert said that, "So long as there is no evidence in our hands [of their death], we will continue to conduct ourselves under the assumption that they are alive."

Meanwhile, Defense Minister Ehud Barak yesterday agreed to a request by visiting French Foreign Minister Bernard Kouchner to ease some of the economic sanctions imposed on the Gaza Strip in retaliation for the continued Qassam rocket attacks on Israeli communities bordering the Strip.

Barak authorized a transfer of cement for the completion of a project being promoted by Quartet envoy to the Middle East Tony Blair.

The French foreign minister's request followed a delay in the completion of a project for the restoration of the sewage system in the northern Gaza Strip, which posed a serious hygienic hazard to the population there.

This is considered to be a "flagship project" for the international community and a great deal of importance is attributed to it.

Cement transfers have normally crossed through the Sufa checkpoint, but due to intelligence warnings of planned attacks against that location, the shipment will be sent through a different crossing.

In his meetings with Olmert and Barak yesterday, Kouchner expressed his grave concern at the policy of checkpoints in the West Bank.

"There are 640 checkpoints in the West Bank and this intensifies the desperation and frustration of the Palestinians," Kouchner said.

The French foreign minister urged Olmert and Barak to ease the movement of Palestinians in the West Bank, saying that the restrictions "kill hope for peace and for improved economic conditions for the population."