JERUSALEM, Dec 8 (Reuters) - An Israeli minister on Saturday rebuffed criticism by U.S. Secretary of State Condoleezza Rice of Israel's plan to build new homes on occupied land in the Jerusalem area, saying nothing should prevent the project.

Rice, who masterminded last week's Annapolis conference to press for an Israeli-Palestinian peace accord before the Bush administration leaves office, on Friday criticised the planned construction, saying it "doesn't help to build confidence".

Responding to the rare public U.S. censure, Israeli Construction and Housing Minister Zeev Boim reiterated Israel's position that it can build anywhere in Jerusalem, the Arab east sector of which Israel captured in the 1967 Middle East war. "Secretary of State Rice should be congratulated for her efforts in relaunching the peace process," Boim said in a statement. "But this cannot constantly be linked to the cessation of construction in Jerusalem."

Palestinians consider East Jerusalem part of the occupied West Bank, which they want for a state and where Israel is obliged to freeze Jewish settlement activity under a 2003 peace "road map" championed by the United States.

Boim said the controversial project, known to Israelis as Har Homa and to Palestinians as Abu Ghneim, "is within Jerusalem's municipal borders, where Israeli law applies. There is thus nothing to prevent the construction there, just as there is nothing to prevent construction anywhere else in Israel."

Israel announced earlier this week that it was seeking bids from construction firms to build over 300 homes and other units at the site, which is south of East Jerusalem. A government spokesman said the tender was part of a 7-year-old plan.

Israel's annexation of East Jerusalem and incorporation of surrounding West Bank areas within much expanded Jerusalem city limits is not recognised internationally. Israel has settled Jews on much of that land, effectively isolating East Jerusalem.

U.N. Secretary-General Ban Ki-moon said the Israeli building project was "not helpful", and Palestinian presidential aide Nabil Abu Rdainah said the Americans "must pressure the Israeli government to stop settlement activities."

Negotiators from the two sides will meet in Jerusalem on Wednesday for the first round of talks since Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas met in Annapolis. (Writing by Dan Williams, editing by Tim Pearce)

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