Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas are set to meet Thursday amid rising tensions over whether the promises of peace they made a month ago in Annapolis, Md., can be fulfilled.

The Israeli and Palestinian leaders have quickly met a variety of roadblocks in the process they had pledged to relaunch last month at the summit under US auspices, buoyed by the attendance of other Middle East players.

Fueling the impasse is the ongoing volley of violence between the Israeli military and Palestinian militants in the Gaza Strip, and an Israeli decision to build new homes in Jerusalem's Har Homa neighborhood, which Palestinians refer to as a settlement and call by its Arabic name, Jebel Abu Ghneim.

After the Annapolis summit, Israel's Housing Ministry issued a tender to build more than 300 new housing units in Har Homa, which first began construction 10 years ago under heated controversy. The growing urban development in East Jerusalem is within Israel's self-delineated municipal limits for its capital city, but is over the Green Line – the pre-1967 border between Israel and Jordan – and therefore viewed as a settlement by the international community.

US and Egyptian officials have criticized Israel's move to renew building in Har Homa so soon after Annapolis, indicating that it undermines trust between the parties.

Mr. Olmert's government has gone on the defensive about the decision. On the one hand, it says that the decision to build was made by a lower-ranking official in the Housing Ministry, which issued the tender without Olmert's knowledge. On the other, it says that it has no intention of forfeiting the land of Har Homa to the Palestinians.

"In our view, this is not part of the problem with the Palestinians, we are building in the neighborhoods inside Jerusalem, we are not building new settlements," Defense Minister Ehud Barak said at a meeting with Egyptian President Hosni Mubarek. "The Palestinians are far from implementing phase one of the road map, which calls for rooting out the terror infrastructure."

Palestinian officials say that the building in Har Homa is going to be at the top of the agenda for Thursday's meeting between Olmert and Abbas. Palestinians have demanded a cessation to all settlement building as a requisite step toward rebuilding expectations for peace.

Mr. Barak met Mr. Mubarek in the Sharm el-Sheikh resort in Sinai Wednesday, in part to try to untangle a new knot in the Israeli-Egyptian relationship following a set of highly critical comments made earlier this week by Israeli Foreign Minister Tzippi Livni. Ms. Livni told a Knesset committee that Egypt was not doing enough to stop smuggling into Gaza, calling the efforts of Egyptian forces at the border "bad and problematic," according to the Israeli press.

The censure has resonance because of the increased intensity and frequency of attacks pitting the Israeli military against Palestinian militant groups in Gaza. Many Israeli analysts as well as Palestinian observers have contemplated whether this might spiral into a full-scale conflict, possibly presaging a major Israeli military invasion of Gaza.

Egypt has been trying to broker a tahdiyia – Arabic for calm, and representing some level of "cooling down" that falls short of a truce – between Israel and Hamas, the militant group that controls Gaza. So far, however, the cross-border attacks have continued. Israeli forces killed more than a dozen militants in Gaza last week, while Palestinian groups have continued to launch Kassam rockets into southern Israel – six in a row Wednesday afternoon alone. Islamic Jihad, a Muslim militant group that does not engage in political or social activities the way Hamas does, has taken responsibility for many of the attacks, and has threatened to resume suicide bombings following Israel's targeted assassinations of several of its top militants last week.

Mubarek said Israel's decision to build new housing units in Har Homa was damaging to the peace talks, according to his spokesman, Suleiman Awwad. "This settlement activity will hijack the only outcome of the Annapolis conference, which was the relaunching of peace negotiations."

Israeli officials seem surprised to find such opposition to building at Har Homa, insisting that it is only "natural growth," and that only 4,500 of the 6,500 units planned for the area – when Israel broke ground in 1997 – have been built.

"In our discussion, we assume that Har Homa will be a part of Israel," a senior Israeli official said. "Since March 2001, there have been no new settlements built, and we agreed that there will be no economic incentives for settlers to go live in settlements. Since then our policy has not changed."

President Bush is due to visit the region in less than 10 days, when he plans to meet Israeli and Palestinian leaders on their turf for the first time. Mr. Bush hopes to get the two leaders to sign a major peace deal before in 2008.