The Israeli government has announced plans to build nearly 900 new housing units in a part of East Jerusalem that is considered occupied territory.
The contentious move comes amid the ongoing political battle swirling around Israeli Prime Minister Ehud Olmert, who is accused of corruption.
Mr Olmert's cabinet met for the first time since Defence Minister Ehud Barak said it was time for him to step down.
An Israeli official said Mr Olmert was getting on with government business.
The prime minister, he said, was keeping his cards close to his chest and did not discuss his future with his colleagues during the meeting.
Mr Olmert remained convinced he was innocent of the accusations that relate to his time as mayor of Jerusalem, the official said.
Districts redrawn
On Monday, the prime minister will have one of his regular meetings with the Palestinian President Mahmoud Abbas, in an attempt to push forward peace talks.
Those talks will take place in the wake of the new housing announcement.
The Palestinian Authority has condemned the news of more settlement building on occupied territory.
The Israeli government insists that any final peace deal will see these districts redrawn inside the Israeli border.
In addition to Mr Barak's call for him to step aside, Foreign Minister Tzipi Livni said that the Kadima Party, to which both she and Mr Olmert belong, should hold new leadership elections.
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