JERUSALEM, Dec 9 (Reuters) - Israel's deputy prime minister responded on Sunday to U.S. criticism of plans to build homes on occupied land in the Jerusalem area by saying parts of the city must be given to the Palestinians to avoid losing U.S. support.

But Haim Ramon told Israeli radio that Israel would not give up the Jewish settlement where the building plan announced last week sparked Palestinian anger and a warning from U.S. Secretary of State Condoleezza Rice that it risked harming a peace process she helped relaunch last month at the Annapolis conference.

Israel has rejected criticism of a tender for some 300 more homes and other units at Har Homa -- which Arabs call Abu Ghneim -- on the grounds that it annexed the land and placed it inside Jerusalem city boundaries it drew after occupying the West Bank in 1967. That annexation is not recognised internationally.

Ramon said, however, that Prime Minister Ehud Olmert's opponents were being unrealistic in hoping for U.S. support for any peace plan that would give the Jewish state all the present Jerusalem municipality, which includes Arab East Jerusalem and other territory annexed from the West Bank, as its capital.

Palestinian President Mahmoud Abbas wants East Jerusalem as capital of a Palestinian state in the West Bank and Gaza Strip.

Ramon told Army Radio: "I am convinced that all Jewish neighbourhoods, including Har Homa, should be under Israeli sovereignty and the Arab neighbourhoods should not be under Israeli sovereignty because they pose a threat to Jerusalem being the capital of Jewish Israel.

"Those who want Walajeh and Jabal Mukaber as well as Har Homa, will ultimately cause Jerusalem not to be a Jewish capital to Israel with a clear Jewish majority," he added, referring to Palestinian villages incorporated into Jerusalem after 1967.

Ramon, seen as a confidant who often speaks for Olmert, told Israel Radio: "Whoever wants Walaja, is endangering our hold on Har Homa ... Jewish neighbourhoods will remain in Israeli control and Arab neighbourhoods will be the Palestinian capital.

"This is the right thing to do. This way we will not be drawn into an unnecessary annexation especially when we need the backing of the United States." (Reporting by Avida Landau; Writing by Alastair Macdonald; Editing by Matthew Tostevin)

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