Monday's talks are expected to focus on the announcement that Israel had allocated $25 million in its 2008 budget to expand the settlements of Maale Adumim in the West Bank and Jebel Abu Ghneim, or Har Homa, in East Jerusalem.

The allocation in the draft budget is due to be approved this week by the Knesset (parliament). The plan is to build 500 new housing units in Har Homa and 240 in Maale Adumim.

Just like the first round of talks two weeks ago that were preceded by Israel announcing plans to expand Har Homa settlement, Monday's negotiations are also expected to hit a brick wall. Palestinians view the settlement activity as not only an obstacle to the peace process, but also as a major block to any progress at all.

Palestinian critics say that by defiantly declaring settlement activities ahead of talks, Israel is effectively rendering the settlements question the only one of a number of core final status issues that need to be negotiated for a final peace deal and a future Palestinian state.

Ongoing settlement expansion in the West Bank and East Jerusalem, which Israel captured in 1967, is also embarrassing and undermining the Palestinian Authority at home, particularly because it has vowed to attend every negotiating round despite Palestinian frustrations of Israel's blockades and other restrictions.

Head of the Palestinian negotiating team Ahmed Qurei said talks will be "useless" while settlement construction continues. Palestinian negotiator Saeb Erekat said Monday's talks "will focus on only one issue: How to stop the settlements on Palestinian land," adding, "We want to hear an answer from the Israeli side on whether they want to stop the settlements before" U.S. President George W. Bush arrives on his first visit to the West Bank and Israel in January.

"We are ready to take the opportunity to negotiate, but we want to see the facts on the ground and we see no need for negotiations while settlements are going on," Erekat told AFP.

Palestinian President Mahmoud Abbas and Israeli Prime Minister Ehud Olmert will also talk about Jewish settlements when they meet this week.

"At that meeting, we want the final answer from Olmert and the Israeli government on whether they want peace or settlements," Erekat added.

Jewish settlements in the West Bank and East Jerusalem are deemed illegal by the international community, but Israel insists that since it annexed the eastern part of the holy city shortly after its capture, it is not occupied territory. The international community does not recognize the annexation of Jerusalem.

The Palestinians, backed by the Arabs, want East Jerusalem – holy to Muslims, Christians, and Jews – as the capital of their future state, while Israel wants all Jerusalem as its "united and eternal" capital.

Abbas and Olmert vowed at Annapolis to implement their obligations to the first phase of the international Quartet's peace road map, which calls for a halt to all Israeli settlement activities and for the PA to rein in militants.

The Palestinians now expect Washington to take a firm position against Israel's settlement activities if Bush's visit next month is to have an impact on pushing forward the Palestinian-Israeli peace process and if the U.S. administration wants to see a peace deal before its term expires in January 2009.

U.S. Secretary of State Condoleezza Rice two weeks ago criticized any expansion of Har Homa, saying she told Israeli Foreign Minister Tzipi Livni that "this is not going to build confidence."

But Qurei said ahead of the second round of talks Monday that "criticism and expression of concern alone" were not enough and he urged the international community, particularly the United States to "seriously assume responsibility" in putting an end to the settlement construction.

Arab analysts say that in an attempt to preempt U.S. pressure ahead of Bush's visit, the Israeli government has implied it would remove some of the so-called "illegal settlement outposts" erected after the road map was drawn up in 2003.

But Palestinians expect the removal of the outposts, of which there are more than 100 in the West Bank, will coincide with continuing construction on existing settlements, which Israelis argue does not contradict the road map.

Meanwhile, an Israeli ministerial committee was to meet Monday to discuss easing its criteria for releasing Palestinian prisoners with so-called "blood on their hands," or those convicted of attacks on Israelis.

The Israeli review is a sign that progress may be at hand to secure a swap deal with Hamas, through Egyptian mediation, to release Israeli soldier Gilad Shalit, who was captured by Gaza militants in June 2006.

Israeli media reports indicated that Hamas and Israel have agreed on the release of 450 of the 11,000 Palestinian detainees in exchange for Shalit, but negotiations were continuing on the names and Hamas' insistence on the freedom of some with severe prison terms.