The US-sponsored "road map to peace" set out in 2003 calls on Israel to halt all settlement activity in the occupied West Bank and obliges Palestinians to rein in armed groups.
Ehud Olmert, Israel's prime minister, earlier told MPs from his Kadima party that his government had made no secret it intended to continue building in what he called Jewish neighbourhoods of East Jerusalem and in areas of the West Bank it intends to keep in any peace deal.
Israel has approved the construction of almost 1,700 homes in occupied Palestinian territory since the relaunch of peace talks at a summit last November in Annapolis, Maryland, an Israeli watchdog group said on Monday.
Peace Now said that Israel was undermining negotiations by repeating one of its "worst mistakes" by building on disputed land while holding peace talks.
The new construction announced on Monday was for both the occupied and annexed Arab East Jerusalem, and the occupied West Bank.
A spokesman for the Jerusalem municipality said the city's planning and construction committee has approved 600 new apartments in the Pisgat Zeev housing project on land that had been zoned for industry.
The Shas Party, a short time later, said Olmert had promised to revive frozen plans to build 800 homes in an ultra-Orthodox settlement in Beitar Illit.
International law holds all Israeli settlements on occupied Palestinian land as illegal, and the issue has been one of the main stumbling blocks in peace talks.
Saeb Erekat, a senior aide to Abbas, said officials presented information on Israeli settlement activity to Rice during their meeting in Jordan, emphasising it as "the most dangerous obstacle to peace".
Talks 'on track'
However, Rice told reporters in Jordan that talks were "moving in the right direction" to reach some sort of peace agreement by 2009 that would lead to the creation of a Palestinian state.
"I have to say I find very impressive the work that is being done and the seriousness of the process and I think it's all moving in the right direction," she said.
|Palestinians say Israeli settlements are the|
'most dangerous obstacle to peace' [EPA]
Jacky Rowland, Al Jazeera's correspondent in Jerusalem, said it was hard to understand what Rice's optimism was based on.
She said: "Not only is there the continued construction of settlements, which is clearly eroding the land that is supposed to be the subject of negotiations on the establishment of a Palestinian state, but there are also continued military operations inside the West Bank - included targeted killings."
The subject of the Gaza Strip, which is largely run by Hamas, rather than Abbas and the Palestinian Authority, is also not factoring in to the negotiations, Rowland said.
"Any agreement that only deals with the West Bank is clearly only a partial agreement and, therefore, not the kind of achievement that Palestinians are looking for."
Abbas, meanwhile, announced at the news conference in Jordan that he would meet Olmert for face-to-face talks on April 7 - their first meeting in seven weeks.
The Palestinian president halted direct negotiations in February after a series of Israeli raids on the Gaza Strip left scores of Palestinians dead.