Ramon said giving up Palestinian villages incorporated into Jerusalem after 1967, such as Walajeh and Jabal Mukaber, could avoid further rebuke from the United States at a time Israel needs its backing.
INSIDE JERUSALEM
Israel has rebuffed Rice's criticism, saying the Jewish state has the right to build anywhere in Jerusalem.
Israeli Construction and Housing Minister Zeev Boim said before a cabinet meeting on Sunday the plan was legal because it took place "within the framework of the municipality". Education Minister Yuli Tamir also said that while Israel must be "very careful" not to violate international agreements, Har Homa fell within city boundaries.
The future of Jewish settlements under any peace deal is one of the thorniest issues facing negotiators, who are due to meet on Wednesday for their first talks since launching the long-stalled peace process in Washington almost two weeks ago.
U.S. President George W. Bush wants an agreement on Palestinian statehood before he leaves office at the end of next year but many observers say that time scale is too ambitious given big differences on core issues such as Jerusalem, borders -- including settlements -- and Palestinian refugees.
Under a U.S.-backed "road map", Israel must freeze settlement activity and Palestinians are required to rein in militants.
Hundreds of Jewish outposts have sprouted without government authorisation. Right-wing activists who oppose ceding land to the Palestinians climbed craggy West Bank hills to protest on Sunday and said they planned to erect more outposts.
Israel wants to draw a fortified border through the West Bank that would place major Jewish settlements inside a newly defined Israel and says it could remove outlying communities.
