JERUSALEM -- Israeli and Palestinian leaders agreed Thursday to put aside a dispute over Israeli construction in a Jerusalem neighborhood and get down to work on a final peace agreement, according to participants at the meeting.
The two-hour meeting between Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas appeared to break an impasse that has clouded renewed peacemaking and cleared the way for a visit by President Bush next month.
It was the first summit between the two leaders since they relaunched peace talks at a U.S.-hosted meeting last month.
"Beginning next week, final status negotiations will be resumed," said Ahmed Qureia, the lead Palestinian negotiator.
At last month's summit in Annapolis, Md., Olmert and Abbas agreed to restart peace talks after seven years of violence, setting a 2008 target for a final peace agreement. But attempts to begin negotiations have foundered over a new Israeli plan to build more than 300 new homes in a Jewish neighborhood of east Jerusalem.
The Palestinians claim east Jerusalem as their future capital and have demanded the project be halted.
Israel, which captured east Jerusalem in the 1967 Mideast War and annexed it, has rejected the demand.
While the dispute wasn't settled in Thursday's meeting, the two sides agreed the matter should no longer hold up peacemaking, officials said. Both sides called the talks "positive."
"There was a joint desire to move forward, to make progress," said Israeli government spokesman Mark Regev.
Resolving the conflicting claims to Jerusalem is just one of the sensitive issues that negotiators must tackle during the coming year, along with the future of Israel's West Bank settlements and the hundreds of thousands of Palestinian refugees with their millions of descendants.
Some 270,000 Jewish settlers live in the West Bank, in addition to about 180,000 Israelis living in east Jerusalem neighborhoods.
The Palestinians want a halt to all Israeli construction in east Jerusalem and the West Bank, which also was captured in the 1967 war.
Israel committed to freeze all construction in West Bank settlements under the recently revived 2003 "road map" peace plan, but it has never honored that obligation.
During Thursday's meeting, Olmert reiterated pledges not to build any new settlements or expand existing settlements beyond their current borders, an Israeli official said.
But he maintained the right to build in east Jerusalem and within the existing limits of major West Bank settlements to account for natural growth, the official said, speaking on condition of anonymity because the talks were private.
Qureia said Olmert's pledges to limit settlement activity were "satisfactory," though he also said the Palestinians were seeking U.S. intervention. At the Annapolis peace summit, Israel and the Palestinians said the U.S. would judge implementation of the road map.