JERUSALEM (AP)  Israel announced plans Sunday to build hundreds of homes in the West Bank and disputed east Jerusalem, setting off another crisis in the embattled peace process ahead of the arrival of a key U.S. mediator. The fatal shooting of eight rabbinical seminary students by a Palestinian resident of Jerusalem dampened low expectations for negotiations that aim for a treaty this year. Palestinian negotiator Saeb Erekat said the new plans further undermine talks between Israel and the West Bank administration of Palestinian President Mahmoud Abbas. "Why do they insist on doing this and humiliating Abu Mazen in front of the Palestinian public," he said, using Abbas' nickname. Israeli Housing Minister Zeev Boim said the construction would include 350 apartments in Givat Zeev, a West Bank settlement just outside of Jerusalem, and 750 homes in Pisgat Zeev, a Jewish neighborhood in east Jerusalem. Israel captured and annexed east Jerusalem in the 1967 Mideast war but Palestinians claim it as their capital and the annexation is not recognized internationally. Givat Zeev is in one of the three major settlement blocs that Israel intends to retain in any peace agreement. Bush has signaled support for the Israeli position, and the Palestinians have expressed willingness to consider swapping land where settlement blocs stand for equal amounts of Israeli land. Boim told Israel Radio that the Givat Zeev construction began eight years ago but was suspended because of fighting with the Palestinians. "When violence subsided, demand grew again and contractors renewed their permits to build there," he said. Erekat said he has appealed to the U.S. to pressure Israel to halt the projects. Palestinians charge that Israeli settlement expansion is sabotaging their efforts to build a state in the West Bank and Gaza Strip. Israeli Prime Minister Ehud Olmert and Abbas promised President Bush last November to work for a peace treaty this year, renewing negotiations that were frozen during seven years of violence. But the talks have already been interrupted several times because of arguments over Israeli construction in disputed areas. Abbas then suspended the talks because of Israel's Gaza offensive last week to try to stop daily Palestinian rocket barrages on southern Israel. He agreed to renew them only under direct pressure from Secretary of State Condoleezza Rice. Then came the seminary attack, hours after Palestinians in Gaza set off a bomb on the border, killing two soldiers, a Bedouin and a Jew. The Jewish soldier died of his wounds Sunday and was buried in a funeral ceremony conducted partly in sign language, because both his parents are deaf. U.S. envoy Lt. Gen. William Fraser III is scheduled to arrive in the region on Thursday for his first joint meeting with Israelis and Palestinians. Bush appointed Fraser in January to monitor implementation of the U.S.-backed "road map" peace plan — which, among other things, calls on Israel to freeze all settlement activity. The plan also calls on the Palestinians to dismantle violent groups — a step Israel says has not been fulfilled. The latest construction dispute involves three of the four main core issues that have defied solution in more than a decade of on-again, off-again peace negotiations — borders between Israel and a Palestinian state, Jewish settlements in the West Bank and the future of Jerusalem. The fourth issue is a solution for Palestinian refugees. Most of the 270,000 West Bank settlers live in the major blocs, and an additional 180,000 Israelis live in Jewish neighborhoods Israel built in east Jerusalem after 1967. Israel does not consider the east Jerusalem neighborhoods to be settlements, but the Palestinians and international community do. Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Conversation guidelines: USA TODAY welcomes your thoughts, stories and information related to this article. Please stay on topic and be respectful of others. Keep the conversation appropriate for interested readers across the map.