Israel announced a ten-month freeze on building Jewish settlements in the occupied West Bank yesterday, a move welcomed by Washington but rejected by the Palestinian leadership because it did not include East Jerusalem. After months of wrangling between Israel and the Obama Administration, which had demanded a total settlement halt, Binyamin Netanyahu made a televised address to announce the temporary moratorium and call for a return to long-stalled peace talks.

“I hope that this decision will help to launch meaningful negotiations to reach a historic peace agreement that would finally end the conflict between Israel and the Palestinians,” the Prime Minister said after a special Cabinet session. “We have been told by many of our friends that once Israel takes the first meaningful steps toward peace, the Palestinians and Arab states would respond.

“Israel’s Government has made an important step toward peace today. Let us make peace together.”

However, he refused to meet Palestinian demands for the freeze to extend to East Jerusalem, captured by Israel in the 1967 Six Day War and which the Palestinians see as the capital of their future state. The Israelis also see Jerusalem as their capital, as Mr Netanyahu reiterated in his speech. “We do not put any restrictions on building in our sovereign capital,” he said.

A senior Palestinian official said that by excluding East Jerusalem the Israeli side had barely moved its position. “What is new? What has changed?”

Nabil Abu Rdainah, a spokesman for President Abbas, added: “Any return to negotiations must be on the basis of a complete settlement freeze, and in Jerusalem foremost.”

Last week the US criticised Israel for going ahead with plans to build hundreds of new apartment blocks in an area of Jerusalem that lies across the so-called 1967 green line, in the West Bank. The State Department also criticsed the Israeli “pattern of evictions and demolition of Palestinian homes” in the eastern, mainly Palestinian, part of the city.

Washington was more placatory yesterday, with Hillary Clinton, the Secretary of State, welcoming the declaration. George Mitchell, her regional peace envoy, said that he hoped the declaration could have a “substantial impact” in tackling the conflict but reiterated that Washington did not recognise the legitimacy of continued settlement growth.

Israel’s right-wing Government has frequently complained that the Palestinian leadership has refused to return to talks while settlement growth continues, even though Mr Abbas held extended talks with Mr Netanyahu’s predecessor, Ehud Olmert, under whom settlement growth flourished.

The Palestinians have replied that for almost two decades of fruitless negotiations Israeli settlements have swallowed up their land and that a total halt is now needed.

Mr Netanyahu’s speech was a clear challenge to the Americans to switch diplomatic pressure to the Palestinians to resume talks, the latest move in a tough process of jockeying for any leverage even before future talks might start again.

“It’s an important and historic decision, one of the most important decisions this Government has made,” said Binyamin Ben-Eliezer, the Labour trade and industry minister. “The decision would leave the Palestinians with only one choice — join the political negotiations. They have no reason to stall anymore.”

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