Jerusalem  - Israel will continue building new homes in occupied East Jerusalem, Prime Minister Ehud Olmert told visiting US Secretary of State Condoleezza Rice, rebuffing her criticism of plans for settlement construction in the occupied Palestinian areas.

Israeli media reported Monday that Olmert told Rice that while Israel would not confiscate more Palestinian land, it would build in Jewish neighbourhoods of Jerusalem it expected to keep as part of any final settlement with the Palestinians.

Olmert and Rice met on Sunday night, after the secretary of state had earlier held talks with Israeli Foreign Minister Tzipi Livni and Palestinian President Mahmoud Abbas.

At both meetings Rice slammed Israeli settlement plans, saying they had the potential to "harm" the ongoing peace talks with the Palestinians.

Israel insists on building to accommodate "natural growth" in West Bank settlement blocks it hopes to keep as part of any final agreement. This includes in East Jerusalem, which Israel captured in the 1967 war and annexed shortly afterwards, but which Palestinians want as the capital for their future state.

Rice is slated Monday to meet Israeli Defence Minister Ehud Barak and Abbas. (dpa)