By Arshad Mohammed

WASHINGTON, Feb 12 (Reuters) - Palestinian Prime Minister Salaam Fayyad said on Tuesday that Israel has done nothing on the ground to help his government and he would be "a damn lot happier" if it took concrete actions to do so.

For the second day in a row, Fayyad voiced frustration at what he called Israel's failure to ease the lot of Palestinians -- including by removing checkpoints on the West Bank -- more than two months after the U.S.-hosted Annapolis peace meeting.

He also said Israeli and Palestinian negotiators had made little progress since Annapolis, where Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas agreed to begin talks aimed at reaching a peace deal by the end of 2008.

"Israel has not done a thing materially on the ground to help my government. I say this with sadness," Fayyad said in a speech at the Aspen Institute, a U.S. nonprofit group that is seeking to promote investment in the Palestinian territories.

An Israeli official who asked not to be named disputed Fayyad's assessment, saying Israel had supported the Palestinian Authority in various ways including by releasing Palestinian prisoners, transferring Palestinian tax revenues and handing over security responsibility of Nablus.

The Israeli official, who spoke on condition that he not be identified because he was not authorized to discuss the matter in public, said the fact that Israel's ambassador to the United States, Salai Meridor, attended Fayyad's speech demonstrated that Israel views the Palestinian prime minister as a partner.

"Atmospheres are much better, (but) checkpoints have increased, not decreased," Fayyad said. "We have good meetings, friendly meetings. A lot of promises of 'we will think about this, this makes sense,'" he added.

"I am happy when somebody tells you 'you are making sense.' I would be a damn lot happier when I see things begin to happen."

Fayyad added that without better mobility -- including removing some of the hundreds of checkpoints on the West Bank -- the Palestinians would never improve their economy.

Israel argues that the checkpoints are needed to protect itself against Palestinian suicide bombers.

On Monday, Fayyad accused Israel of failing to keep its commitments under the 2003 U.S.-backed road map peace plan to freeze Jewish settlement activity.

Israeli plans to build 1,100 new homes in and around Arab East Jerusalem came under fire on Tuesday from Palestinians who see the city as the capital of their future state, clouding already troubled peace talks.

Israeli officials cited "progress" after negotiators met for the first time on two consecutive days.

Fayyad offered a more restrained assessment.

"It's better that we are talking," he said. "But so far progress has been limited."

Asked about the Israeli building plans, U.S. State Department spokesman Sean McCormack described such moves as "potential irritants" in the peace process.

McCormack said the United States was seeking clarification from the Israelis following the announcement, adding it did not necessarily mean there would be any construction soon.

"I am sure, between now and when you have an actual agreement, a final agreement on final status issues, there are going to be any number of issues that arise to distract, that have the potential to distract both sides and that have the potential to serve as irritants," he said. (Editing by John O'Callaghan)

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