Israel's Prime Minister Benjamin Netanyahu Image Credit: Reuters

Occupied Jerusalem: Israeli Prime Minister Benjamin Netanyahu said on Sunday he would not restrict construction in occupied east Jerusalem, a step requested by the US, but would upgrade upcoming indirect talks with the Palestinians to include the main issues dividing them.

Netanyahu originally had wanted to put off a discussion of issues like the status of occupied east Jerusalem, final borders and the fate of Palestinian refugees until direct talks are launched.

It was not clear what Netanyahu's declared refusal to budge on occupied east Jerusalem would mean for future relations with Washington and the rest of the international community.

Netanyahu's moves go nowhere near the US  demand to cancel a major new housing project at the heart of the row, but apparently he has offered enough to prompt US Secretary of State Hillary Rodham Clinton to call them "useful and productive" and dispatch an envoy back to the region this week.

UN chief Ban Ki-moon, who was touring the Gaza Strip on Sunday, told reporters that Netanyahu would be meeting with US President Barack Obama while in the US. The prime minister's office had no immediate confirmation.

He described Israel's recent opening of Gaza's borders to allow in window frames and other supplies to complete a 151-apartment UN housing project in southern Gaza as "a drop in a bucket of water."

The blockade causes "unacceptable suffering" and "undercuts moderates and encourages extremists," he said, after visiting the project in the Khan Younis refugee camp. "My message to the people of Gaza is this: the United Nations will stand with you, through this ordeal."

Most of the 15,000 homes destroyed or damaged during Israel's war in Gaza that ended in January last year have also not been repaired because of the blockade. Israel launched the war after years of rocket fire from Gaza on its southern communities.

Hamas police lined the streets in areas Ban visited. They repeatedly prevented journalists from keeping up with the UN convoy, blocking roads and repeatedly raising their assault.