In a move that could strike a blow at already fragile peace talks, Jerusalem city planners will in the coming weeks discuss a scheme to build over a thousand housing units beyond the Green Line, Haaretz learned on Tuesday.

At a U.S.-mediated summit in the Egyptian resort of Sharm el-Sheikh, aides to Prime Minister Benjamin Netanyahu said talks were being conducted in a "good atmosphere".

But news of the Jerusalem debate, scheduled for early October, could be seen as a provocation by Palestinian President Mahmoud Abbas, who has repeatedly vowed to quit peace talks over Israeli settlement construction.

The latest negotiations, which kicked off in Washington earlier this month, have been dogged from the outset by the question of whether Israel will restart settlement construction in the West Bank when a self-imposed 10-month freeze expires in late September.

On October 7, the Jerusalem District Planning and Construction Committee will discuss plans for 1,362 new homes in Givat Hamatos, between the suburbs of Talpiot and Gilo. The hilltop area is currently the site of a caravan village populated mostly by Arabs and Ethiopian immigrants.

Although Givat Hamatos is not covered by the freeze, which excludes East Jerusalem, the timing of the debate could have significant diplomatic consequences.

In April, an Israeli announcement of plans for 1,600 housing units in the East Jerusalem neighborhood of Ramat Shlomo coincided with a visit to the country by U.S. Vice President Joe Biden, leading to a high-profile row between Israel and the United states.

Responding to news of the upcoming debate, Ir Amim, a non-profit group, said:

"Sadly, East Jerusalem is once again being used as a battleground for provocative and irresponsible activities on the part of the authorities, and once again it's especially horrible timing."

'All or nothing'

Ahead of the talks, Israeli officials warned that the Palestinians' "all or nothing" strategy of insisting on a total freeze on West Bank construction risked paralyzing negotions in their infancy.

"This attitude of all or nothing has over the past year led to a stagnation, with the result that in nine months of construction freeze, there were no negotiations," one high-ranking official told Haaretz.

But chief Palestinian negotiator Saeb Erekat on Tuesday refused to adjust his position, saying: "Choosing to continue with settlements in any form means destroying the negotiations."