Mr Netanyahu said "there will be no freeze in Jerusalem"
Israeli PM Benjamin Netanyahu has again rejected US calls to halt construction in occupied East Jerusalem.
He spoke as US Middle East envoy George Mitchell arrived in the region for separate talks with the Israeli and Palestinian leaders.
It is his first visit since a row broke out between Israel and the US over home construction plans in East Jerusalem.
Meanwhile, the UN said it could not educate thousands of Palestinian pupils because of Israel's blockade of Gaza.
The head of the UN agency for Palestinian refugees, John Ging, said the blockade made it impossible to build new schools to accommodate the growing numbers of students.
Israel imposed a tightened siege on Gaza after the militant Hamas movement seized control over the Gaza Strip in 2007.
'Status quo unsustainable'
"I am saying one thing: there will be no freeze in Jerusalem," Mr Netanyahu said on Israel's Channel 2 TV.
"There should be no preconditions to talks [with the Palestinians]," the Israeli premier added.
Resolving the Israeli-Palestinian conflict has become a US strategic imperative
Former US ambassador to Israel
However, he added that he hoped to resolve the differences with Washington, without giving any further details.
Mr Mitchell is expected to begin a round of separate meeting with Israeli and Palestinian officials on Friday.
The US State Department spokesman said Mr Mitchell only decided to on the visit to the Middle East on Wednesday evening, after talks other US officials had held in Israel in the preceding days suggested it would be "fruitful" for Mr Mitchell to travel.
PJ Crowley said there had been "good give and take" in talks in recent weeks aiming to reach a compromise, but the Israelis had not done everything the US wanted.
"The status quo is not sustainable," he warned.
The Wall Street Journal quoted unnamed US officials on Thursday as saying that Mr Netanyahu officially rejected the request to freeze construction in East Jerusalem, but offered a series of measures to boost Palestinian confidence, such as easing the blockade on Gaza, releasing prisoners and agreeing to discuss borders and the status of Jerusalem.
The report also suggested Israel was offering to freeze for two years the controversial building project in Ramat Shlomo which sparked the US-Israel row.
Mr Mitchell had to postpone his visit in March
In March, during a visit by US Vice-President Joe Biden, it was revealed that the Israeli government was planning to build 1,600 apartments in the Orthodox Jewish neighbourhood.
Palestinians then walked away from the "proximity talks", or indirect negotiations with the Israelis, which Mr Mitchell had been attempting to arrange.
Mr Mitchell's planned visit in March was postponed.
Israel has occupied East Jerusalem since 1967. It annexed the area in 1981 and sees it as its exclusive domain.
Under international law the area is occupied territory and the international community does not recognise Israel's annexation of East Jerusalem.
Palestinians want East Jerusalem as the capital of a future state.
Obama peace plan?
Meanwhile, Martin Indyk, former US ambassador to Israel - said to be close to Mr Mitchell - earlier this week wrote in the New York Times that Mr Netanyahu faced a choice between taking on the US president, or the right-wing of his own coalition.
Mr Netanyahu has said that no other Israeli prime minister in the past 46 years has been asked to stop building in Jerusalem, which would be unacceptable to his political allies.
But Mr Indyk said Mr Netanyahu's government had failed to notice a shift in US perceptions, which increasingly viewed progress on the Israeli-Palestinian conflict as connected with the US's wider security interests.
"With 200,000 American troops committed to two wars in the greater Middle East and the US president leading a major international effort to block Iran's nuclear programme, resolving the Israeli-Palestinian conflict has become a US strategic imperative," he wrote.
There has been speculation in the past two weeks, based on unnamed senior US officials quoted in the Washington Post, that the Obama administration is considering proposing its own peace plan if the two sides fail to resume negotiations.
Talks between the two parties broke down after the Israeli military operation in the Gaza Strip at the end of 2008.
Many of the UN schools in Gaza were destroyed in Israel's bombardment of the territory in that campaign.
John Ging, the head of the UN Relief and Works Agency (UNRWA), said Israel should allow more materials in to Gaza so schools could be rebuilt.
Speaking to reporters in New York, he welcomed Israel's recent easing of its Gaza blockade, but said much more was needed.
"A drop in the bucket is not a half-full glass," he told reporters.
Israel has allowed in some shipments of aluminium, wood, clothes and shoes, but continues to block cement and steel on the grounds that Hamas, which controls the Gaza Strip, could use them for military purposes.
For the past three years of the Israeli blockade, Gazans have been getting most of their consumer goods through smuggling tunnels under the border with Egypt.
Egypt also keeps its mainly pedestrian crossing with Gaza closed most of the time.