Palestinian leaders have accused Israel of trying to wreck the peace process launched last week by U.S. President George W. Bush after Israel revealed a plan to build new homes on land around Jerusalem.

"This is an attempt to obstruct negotiations," the chief Palestinian negotiator Ahmed Qurei told Reuters after Israel's Housing Ministry said the government had invited construction firms to bid for contracts to build dozens of houses and shops. He urged the United States to intervene to stop the move.

It is the first major public dispute between Israel and the Palestinians since Bush, who has invested much personal capital in seeking peace before he steps down in a year, presided over handshakes at a meeting in Annapolis last week.

A spokesman for Israeli Prime Minister Ehud Olmert, who met Bush and Palestinian President Mahmoud Abbas near Washington, insisted the move did not breach Olmert's undertaking at the conference to honour commitments under the 2003 'road map'.

These include halting Jewish settlement on Arab land. The spokesman said Israel did not consider the site, known as Har Homa by Israel and Abu Ghneim by Palestinians, as part of the West Bank territory which the Palestinians want for a state. "This a flagrant violation of all that happened at Annapolis," Qurei, a former prime minister, said. "We demand from Israel to reverse this decision ... There will be no peace process if they continue with settlement activities." "We urge the U.S. administration, which is the judge, to voice their position. This contravenes everything, starting with the road map and all other signed agreements," he added.

A spokeswoman for the Housing Ministry confirmed the Israel Land Authority, a government agency, had issued a tender for the construction of some 300 units at Har Homa.

The tender, posted on the Authority's Web site and dated Dec. 2, invited firms to bid to build 307 "residential and/or commercial and/or hotels and/or leisure" units.

The Housing Ministry spokeswoman said the tender was part of a plan dating back some 20 years. The site lies south of central Jerusalem, close to Bethlehem. It is one of several residential districts that have been built on land captured by Israel in the 1967 war and now home to a substantial Jewish community.