JERUSALEM -- Israel on Wednesday approved more than 3,000 new housing units in Jewish West Bank settlements around Jerusalem, despite protests from the United States and the Palestinians that settlements obstruct peace efforts.


The decision was a compromise between an ambitious construction program by the Housing Ministry and demands by Prime Minister Yitzhak Rabin's dovish coalition partner, the Meretz party, to freeze all building in Jewish settlements.


The government's move cast a further pall over Israel-PLO autonomy talks, which are already strained following a weekend bombing attack that killed 19 Israelis. The bombing was carried out by the militant Palestinian group Islamic Jihad.


"The Israelis prefer to continue with the policy of settlements that will have negative repercussions for the future of the peace process," said Ahmed Tibi, an adviser to Palestinian leader Yasser Arafat.


Tibi did not elaborate when asked what those repercussions might be. However it seemed unlikely the Israel-PLO autonomy talks would collapse over the settlement issue, since both Arafat and Rabin have staked their political future on the success of the 1993 autonomy plan.


The settlement dispute heated up in the past month after Jewish settlers launched an expansion campaign to stake their claims before a planned Israeli troop withdrawal in the West Bank as part of the autonomy agreement with the Palestine Liberation Organization. Palestinians staged protests on West Bank hilltops to stop bulldozers.


The seven-member ministerial committee on settlements, headed by Rabin, approved the start and completion of 3,243 homes in three settlements outside Jerusalem -- Ma'aleh Adumim, Givat Ze'ev and Betar. All three are within a radius of 10 kilometers of Jerusalem.


The three settlements are in West Bank areas that Israel hopes to annex as part of a final peace settlement with the Palestinians.


The committee also approved construction of 50 homes in half a dozen settlements north of self-ruled Jericho in the West Bank's Jordan Valley. Israel wants to retain control of the valley after pulling soldiers out of other parts of the West Bank.


The decision was a compromise with left-wing demands for an overall freeze in construction since it slowed the pace of construction from one to two years.


Jerusalem is a city of 390,000 Jews and 160,000 Moslems. The Moslems want the eastern part of Jerusalem, annexed by Israel after the 1967 Mideast war, as the capital of a future Palestinian state. However, Jewish settler leaders and opposition lawmakers criticized the government's decision as a surrender to Palestinian demands for a building freeze.


As Palestinian troubles with Israel deepened, Arafat began a fence-mending visit to Jordan.


Jordan is trying to improve ties with the PLO leader, who was angered when last October's Israeli-Jordanian peace treaty gave Jordan priority in administering Islamic sites in Arab East Jerusalem.