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Israeli and Palestinian Authority negotiators resumed talks suspended over this month’s violence in the Gaza Strip.

Israel’s chief negotiator, Foreign Minister Tzipi Livni, met Monday with her Palestinian Authority counterpart, Ahmed Queria, after a hiatus declared by the Palestinians in protest at a bloody five-day Israeli offensive against Hamas rocket crews in northern Gaza.

But the new meeting was overshadowed by Palestinian ire at assertions by Israeli Prime Minister Ehud Olmert that while his government would not build new West Bank settlements in accordance with the U.S.-led peace “road map,” it would continue to expand Jewish neighborhoods in east Jerusalem.

The Palestinian Authority wants east Jerusalem, which Israel captured along with the West Bank and Gaza Strip in the 1967 Six-Day War, as the capital of a future state. Israel designates all of Jerusalem as its capital.

Following Olmert’s remarks, which were delivered alongside visiting German Chancellor Angela Merkel, Queria announced that he would “downgrade” his talks with Livni to “unofficial.”

Livni, addressing the Knesset, defended the negotiations in the face of criticism from right-wing lawmakers who want Israel to boycott the Palestinian Authority in response to the recent massacre of students by an Arab terrorist at a Jerusalem yeshiva.

“Terror will not be an excuse to suspend talks,” Livni said.

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