JERUSALEM — Prime Minister Olmert said today that Israel and the Palestinian Arabs won’t be able to achieve their declared goal of forging a peace deal by the end of the year, citing conflicting claims to Jerusalem as the main obstacle.

Mr. Olmert also said that Arab neighborhoods in east Jerusalem posed a danger to Israelis, hinting that Israel might want to cede control of these areas.

“Whoever thinks the basic pattern of life in Jerusalem can continue with 270,000 Arabs in east Jerusalem must take into account that there will be bulldozers, trucks and private cars, and no way of preventing terror attacks of this kind,” Mr. Olmert said.

Israel captured the eastern part of Jerusalem from Jordan in the 1967 Mideast war and annexed it. Palestinian Arabs claim the eastern sector as capital of their future state, and the fate of the disputed city — home to sites holy to Islam, Judaism, and Christianity — lies at the crux of the Israeli-Palestinian conflict.

At an international conference in America in November, Mr. Olmert and the president of the Palestinian Authority, Mahmoud Abbas, set a year-end target for reaching a final peace deal that would resolve the decades-old conflict.

President Bush has said he hoped to broker a final peace agreement by the end of 2008, just before he leaves office, and American officials have repeatedly pressed Israeli and Palestinian Arab negotiators.

Today, Mr. Olmert said that target was unrealistic because of disputes over Jerusalem.

“I don’t believe that understandings that will include Jerusalem can be reached this year,” an official present at the closed-door meeting of the Foreign Affairs and Defense Committee quoted Mr. Olmert as saying. Mr. Olmert added that the sides would continue discussing the city’s fate after the deadline.

Differences on other key issues, such as the final borders of the Jewish and Palestinian Arab states, and the future of Palestinian Arab refugees, were not “dramatic,” he said.

The official spoke on condition of anonymity because the committee does not formally release details of its meetings to the media. At the same time, when Mr. Olmert spoke, he did so with the knowledge that the panel’s proceedings routinely are disclosed to the press.

Both Israel and the Palestinian Arabs have expressed serious doubt in recent months about attaining their goal of a fleshed-out deal by the end of the year. But Mr. Olmert’s comment today was the clearest indication yet that the Israeli leadership sees the target as unattainable.

An Abbas aide, Nabil Abu Rdeneh, said Mr. Olmert’s comments showed Israel had given up on its promise.

“This is a clear violation of the Annapolis agreement,” he said. “We still have six months, and that means Israel isn’t serious about reaching an agreement according to Annapolis and Bush’s vision.”

Palestinian Arabs account for about one-third of the 750,000 people who live in Jerusalem. They are not Israeli citizens, but have access to Israeli social benefits and can move throughout Israel, unlike the Palestinian Arabs of the West Bank and Gaza.

That freedom of movement has allowed for a string of attacks in the city this year, including two cases in which Palestinian Arab attackers have rammed construction vehicles into buses and cars in downtown Jerusalem. Three people were killed on July 2 and dozens were wounded, while five people were hurt in a similar attack last week.

A third east Jerusalem attacker burst into a religious seminary library in March, killing eight students.

Mr. Olmert told the Foreign Affairs and Defense Committee that such attacks could not be prevented as long as Palestinian Arabs remain under Israeli control in the city — hinting that the solution might be to give up control of neighborhoods where they live.

East Jerusalem residents “can move freely around the entire country and there is no way of knowing what they might do,” the official quoted him as saying.

Mr. Olmert has in the past expressed willingness to cede some Arab neighborhoods. Israel’s West Bank separation barrier already cuts off some outlying Arab neighborhoods from the city.

Many lawmakers in Israel’s parliament object to any territorial concessions on Jerusalem. Still, it is not the residential neighborhoods that have tormented negotiations but the Old City, home to the city’s most important and politically charged religious shrines.