During coalition talks between Israel Beiteinu and Likud, the two sides agreed that the new government would build in the controversial E-1 area, between Jerusalem and Ma'aleh Adumim, Army Radio reported Wednesday.

A source close to the negotiations said that the construction was agreed upon despite the fact that it doesn't appear in the official coalition deal between the two parties.

According to the Ma'aleh Adumim Municipality plan, some 3,000 housing units will be built in the area.

Building in E-1 has been blocked by the government due to US pressure not to build in the area.

The Americans are concerned that such construction would prevent the passage of Palestinians between the northern and southern sections of Judea and Samaria.

Likud and Israel Beiteinu refused to comment on the report.

Labor MK Ophir Paz-Pines blasted the apparent plan, saying it would "finally bury any chance of a peace deal with the Palestinians and lead to a crisis in relations with the US."

At the beginning of March, the left-wing Peace Now movement claimed in a report that there were plans to build 3,250 apartment units in the E-1 area.

A government source then said there were in fact no plans for that area - and even if there were, the approval process could take as long as 10 years.

Peace Now claimed in response that the source of the report was a government Web site. If the claim were true, it would mean the construction plan was devised by the Kadima-led government of outgoing Prime Minister Ehud Olmert.