ERUSALEM, Nov 9 (Reuters) - Israel's plan to build new homes on occupied land should be countered by international recognition of a Palestinian state, the chief Palestinian negotiator said on Tuesday.
Raising the stakes in deadlocked U.S.-sponsored peace talks, Saeb Erekat said it was clear from the latest announcement of building plans that Israel wants settlements, not peace.
"Israeli unilateralism is a call for immediate international recognition of the Palestinian state," he said in a statement.
The United States swiftly repeated its opposition to any unilateral moves to recognise Palestinian statehood.
"Both sides have to avoid unilateral actions that really poison the atmosphere and prevent progress towards negotiations," State Department spokesman P.J. Crowley said.
The world paid little attention when the late Yasser Arafat declared a Palestinian state in 1988. But political winds have shifted and Israel today is seriously concerned that Palestinian President Mahmoud Abbas might win recognition.
Abbas has floated the idea of "going to the United Nations" to declare statehood as one option if peace negotiations collapse, but only after first seeking support from Washington.
Israel on Monday announced plans to build 1,300 new homes on occupied West Bank land it has annexed to Jerusalem, and on Tuesday news reports said a further 800 units were planned in the big settlement of Ariel in the northern West Bank.
The building plans were made public as Israeli Prime Minister Benjamin Netanyahu was in the United States to discuss ways to revive peacemaking that stalled over the settlements.
"This kind of activity is never helpful when it comes to peace negotiations," U.S. President Barack Obama said during a visit to Indonesia.
"And I'm concerned that we're not seeing each side make the extra effort involved to get a breakthrough that could finally create a framework for a secure Israel living side by side in peace with a sovereign Palestine."
Netanyahu countered censure of the latest Israeli project by noting that Jewish homes had gone up in Arab East Jerusalem during previous rounds of peace talks, without blocking them.
"Jerusalem is not a settlement. Jerusalem is the capital of the State of Israel," Netanyahu's office said in a statement.
"Israel sees no connection between the peace process and planning and building policy in Jerusalem ... The disputes with the United States on the matter of Jerusalem are known ... We hope to overcome them and keep diplomatic talks moving ahead."
TIMING
Israel captured East Jerusalem, along with the West Bank, in 1967 and regards all of Jerusalem as its capital, including the two neighbourhoods where new housing has been approved. World powers do not accept Israel's claim on East Jerusalem, which Palestinians want for the capital of their future state.
Secretary of State Hillary Clinton was expected to raise the issue in a meeting with Netanyahu in New York on Thursday.
State Department spokesman Crowley said the statement from Netanyahu's office was unhelpful, and rejected its suggestion there was no link between settlement activity and the peace process.
"There clearly is a link in the sense that it is incumbent on both parties, as we've insisted all along, that they are responsible for creating conditions for a successful negotiation," Crowley said. "To suggest that this kind of announcement would not have an impact on the Palestinian side I think is incorrect."
U.S. misgivings were echoed by Russia, Britain and European Union foreign affairs chief Catherine Ashton, who said Israel's plan "contradicts the efforts by the international community to resume direct negotiations and the decision should be reversed".
Ashton added: "Settlements are illegal under international law, constitute an obstacle to peace and threaten to make a two-state solution impossible."
Direct peace talks between Israel and the Palestinians broke down in September almost as soon as they had begun, after Netanyahu rebuffed Palestinian demands to extend a partial freeze on West Bank settlement building.
Noting that the controversial housing announcement was made while Netanyahu was in the U.S., Crowley said: "It could very well be that somebody in Israel has made this known in order to embarrass the prime minister and to undermine the process".
Washington was outraged in March when settlement housing plans were announced with what looked like defiant timing as U.S. Vice President Joe Biden was visiting Jerusalem.