Ehud Barak, the prime minister, made the announcement, after the Palestinians said they refused to discuss any other key issues in the peace talks until there was an end to Israeli housing construction in the occupied territories.
Speaking at a press conference as the US Secretary of State, Madeleine Albright, flew into Israel for talks, Mr Barak said that the building plans interfered with efforts to reach a peace agreement. "I think that at this time, in the next few months when we are deep in negotiations ... to a certain extent it interferes with Israel's peace efforts to begin something that will not be finished until negotiations end," he said.
There was no immediate response from the Palestinians, who said they wanted time to clarify what Mr Barak meant. His administration has approved more than 3,000 housing tenders in the West Bank and Gaza in five months, arguing that they were projects started by the last government under Benjamin Netanyahu.
The impasse over the settlements began a day before the arrival of Mrs Albright, who is seeking to nudge forward the final status negotiations that have been snarled up for days by a dispute over Israel's latest withdrawal from 5 per cent of the West Bank. She is due to hold separate talks with Mr Barak and Yasser Arafat, the Palestinian President, today.
The Palestinians' case will be bolstered further today with the publication of an Amnesty International report, excoriating Israel both for demolishing Palestinian homes and for denying building permits to Arabs. It says demolitions have continued despite the 1993 Oslo agreement; since 1995, around 5,000 Palestinians have been driven out of their homes.