Israel intends to hold on to Maale Adumim, home to more than 30,000 settlers, in any final peace deal with the Palestinians.
Two weeks ago, Israel invited bids for more than 300 new housing units in Har Homa.
Despite calls to freeze all settlement activity, Israel insists it will continue to build.'No promises'
Rafi Eitan, the cabinet minister for Jerusalem affairs, told local radio that Israel never promised to halt construction within the municipal borders of Jerusalem, whose eastern sector was annexed by Israel after capturing it in the 1967 Middle East war.
He said: "Har Homa is an integral, organic part of Jerusalem."
"No promise was ever given to anyone that we wouldn't continue to build in Har Homa, because it is within the municipal borders of Jerusalem."
According to Eitan, Maale Adumim "is an integral part of Jerusalem in any peace accord".
However, Ahmed Qureia, a senior Palestinian Authority official, said peace negotiations would be meaningless if Israel continued its settlement plans.
Speaking on the eve of the resumption of permanent-status negotiations, Qureia criticised what he called hasty Israeli announcements on building more settlements and expanding existing ones.
The Palestinians intend to urge the Israeli side during Monday's meeting to freeze settlement building as a pre-condition for continuation of the negotiations, Palestinian sources said.
In a separate development, a senior Hamas official in Gaza has said that the group is prepared to reach a truce with Israel provided certain conditions are met.
On Saturday, Ahmed Yussef, a political adviser to Ismail Haniya, the prime minister in the Gaza-based Hamas-led cabinet, told a news agency: "We are ready to reach a truce with Israel ... on the condition that the siege around Gaza is lifted and border crossings are open."
He said Israel must also stop "assassinations" and arresting fighters.
His statements came several days after Israel killed the commander of the armed wing of the Islamic Jihad group, the most senior Palestinian fighter killed in months.
But on Sunday, Ismail Radwan, a Hamas spokesman, said: "It's too early to talk about the truce as long as the aggression continues against the Palestinian people ... the Palestinian people have a right to continue resistance."
For his part, Ehud Olmert, the Israeli prime minister, has ruled out a ceasefire, describing the fight against Hamas as a "true war".
He said: "This war will continue.
"The state of Israel has no interest in holding negotiations with those that refuse to accept the basic principles of the Quartet."
The Quartet is a group of Middle East mediators comprising the UN, the US, EU and Russia.
At the same time, Israeli security officials said that Ehud Barak, Israel's defence minister, will travel to Egypt on Wednesday to meet Hosni Mubarak, the Egyptian president.
The officials said Israel will restate its demand that the Egyptians do more to stop Palestinian fighters from smuggling weapons from Egypt into Gaza.