Rice met Olmert in Jerusalem one day after she had promised Abbas that the US would mount a bigger push towards establishing a Palestinian state.
Rice has been pressing Olmert to take steps that could help bolster the Fatah-aligned Palestinian president in his power struggle with the conservative Hamas movement, which controls the government.
But as Rice met Olmert, Israel's housing ministry said it was building 44 new residential units in the Maale Adumim settlement, in the occupied West Bank, near Jerusalem.
The US-backed "road map" peace plan calls for halting such construction on land Palestinians seek for a state. Washington has criticised such construction in the past. Israel asserts it is part of natural growth.
The Palestinian Authority decried the bids, the chief Palestinian negotiator Saeb Erakat saying: "We condemn this decision to expand Maale Adumim.
"Israel must make a choice between peace and settlements, it cannot have both. It's defying the international community and undermining secretary of state Rice's peace efforts."
Ahmed Abdel-Rahman, a political adviser to Abbas, said the president has yet to be informed about a three-way summit, but added: "We welcome American participation in any Palestinian-Israeli meeting."
"Unless the US administration is prepared to read the riot act to the Israeli government... nothing will be achieved"
Nehad Ismail, London, UK
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Under US pressure, Olmert held his first formal meeting with Abbas in December.
During Rice's meeting with Olmert, she was expected to press the Israeli leader to fulfil pledges made at that meeting to remove roadblocks in the West Bank and release $100m in withheld Palestinian tax funds to Abbas.
Olmert has promised to take more sweeping steps if the Palestinian government, led by Hamas since March, agreed to recognise Israel, renounce violence and abide by interim peace deals.
Israeli and Palestinian officials said Rice's visit, her eighth to the region during her two years as secretary of state, was meant to test the waters for a more concerted peace push in the coming months.
Rice, who held talks on Sunday with Abbas and Jordan's king Abdullah, promised to deepen US involvement in the peace process, which collapsed in 2001.
Rice offered no details in public about her future plans. She has shied away from high-speed Middle East diplomacy in the past.
Israeli officials said Washington was exploring several options including the creation of a Palestinian state with temporary borders, an idea proposed in a US-backed peace plan known as the "road map" but repeatedly rejected by Abbas.