JERUSALEM — Prime Minister Olmert said today that Israel would keep expanding a Jewish neighborhood in eastern Jerusalem, defying international criticism and triggering a new spat with the Palestinian Arabs ahead of a fresh round of peace talks.

Israel plans to build hundreds of new apartments in Har Homa, a neighborhood in the section of Jerusalem claimed by the Palestinian Arabs. America has said such construction is unhelpful to peace efforts, and the Palestinian Arabs say the project is undermining peace talks.

Mr. Olmert called Har Homa an “inseparable” part of Jerusalem. He said Israel would continue building in those areas of Jerusalem, including Har Homa, that it expects to keep under a final peace agreement.

“Everyone knows that there is no chance that the State of Israel will give up a neighborhood like … Har Homa,” Mr. Olmert said in a joint news conference with the visiting German Chancellor, Angela Merkel.

The fate of Jerusalem is the most contentious issue in Israeli-Palestinian Arab peace talks, which were relaunched last November after seven years of fighting. Israel captured east Jerusalem in the 1967 Mideast war and annexed it to its capital.

The Palestinian Arabs claim east Jerusalem as the capital of a future independent state that would also include the West Bank and Gaza Strip, other areas captured by Israel in the 1967 war.

Under the American-backed “road map” peace plan, Israel must stop construction in Jewish settlements, while the Palestinian Arabs must disarm militants.

Some 250,000 Israelis live in the West Bank, along with 180,000 Israelis in Jewish neighborhoods of east Jerusalem. America says the Jewish neighborhoods in east Jerusalem must also be considered settlements. Israel withdrew from Gaza in 2005.

A Palestinian negotiator, Saeb Erekat, reiterated that Israel must halt all settlement construction, including in Jerusalem.

“If they really want the year 2008 to be a year of peace, then this cannot be achieved with the continuation of settlement activities,” Mr. Erekat said.

He called for American intervention. Washington has agreed to monitor Israeli and Palestinian Arab compliance with the “road map” peace plan.

Mr. Olmert has promised not to build any new settlements, but said Israel expects to maintain control of the Jewish neighborhoods of east Jerusalem and major settlement blocs in the West Bank as part of a final peace deal. Construction in these areas has continued.

Ms. Merkel said she had raised the issue of settlement construction with Mr. Olmert and noted that halting settlement activity is part of the road map.

Mr. Olmert also announced that peace talks would resume later today. The Palestinian Arabs had suspended the negotiations early this month to protest a bloody Israeli offensive in the Gaza Strip.

Israel hopes to reach a peace deal with the moderate government of the president of the Palestinian Authority in the West Bank, Mahmoud Abbas, by the end of the year. At the same time, Israel has been battling Mr. Abbas’ rival Hamas, which controls the Gaza Strip. The Islamic terrorist group Hamas seized control of Gaza last June from Mr. Abbas’ forces.