Biden appeals for no delay in Mideast peace talks

Biden said Palestinians had misunderstood Israel's announcement of the settlement plan, thinking that building would begin immediately.

With no construction scheduled for now, he said, negotiators would have time to "resolve this and other outstanding issues."

Mitchell, who has been trying to broker for a year a resumption of talks on Palestinian statehood, was expected to return to Israel and the West Bank next week.

Abbas had demanded a full halt to settlement construction in the West Bank and East Jerusalem, areas captured by Israel in a 1967 war, before any resumption of the two-decade old peace process.

Israel considers all of Jerusalem its capital, a claim that has not won international recognition. Palestinians want East Jerusalem to be the capital of the state they hope to establish in the West Bank and Gaza Strip.

"Jerusalem is the capital of Israel and construction there will be carried out like in Tel Aviv or any other city -- in every part of Jerusalem according to the plans," Israeli Cabinet Secretary Zvi Hauser told Israel Radio.

Asked about a report in Israel's Haaretz daily that 50,000 more homes were being planned for Jerusalem, he said: "I repeat, construction in Jerusalem will continue in all its stages." He added: "Jerusalem is a big city. It is a city that has to grow. The Palestinians say the settlements, considered illegal by major world powers, will deny them a viable state. Under U.S. pressure, Israel announced in November a decision to restrain building in its West Bank settlements for 10 months but said the restrictions would not include East Jerusalem.

(Additional reporting by Mohammed Assadi in Ramallah and Ori Lewis and Jeffrey Heller in Jerusalem and Adam Entous; Writing by Tom Perry; Editing by Dominic Evans)