JERUSALEM: Israel has begun new construction on occupied West Bank land near Jerusalem, sources in interim Prime Minister Ehud Olmert's office said today, days after he had warned Israel could set permanent borders.

Israeli bulldozers have already broken ground to start work on a police station near Maale Adumim, the biggest West Bank settlement, as part of a project to build at least 1,000 homes on land that would link the enclave to Jerusalem, they said.

They said Israeli Prime Minister Ariel Sharon told US officials before his stroke in January that his "E1" plan was in its advanced stages. Washington approved construction of the station, but not of the neighbourhood, the sources said.

The United States, which wants Israel to halt Jewish settlement expansion, has officially opposed the plan, which would seal the West Bank off from Arab East Jerusalem. Israeli officials had said in September that the project was on hold.

Palestinians want East Jerusalem, which Israel captured in the 1967 Middle East War in a move not recognised internationally, as capital of a future state.

Olmert, the frontrunner of a March 28 election, said last week he planned to impose permanent Israeli borders by 2010 by leaving some West Bank land unless Hamas, set to form a new Palestinian cabinet, recognised Israel and renounced violence.

Olmert had said his government would give a Palestinian Authority led by the Islamic militant group, sworn to destroying the Jewish state, "reasonable" time to change its stance and dismarm before Israel would take act alone.