Arab leaders yesterday ruled out renewed Israeli-Palestinian peace talks unless Israel halts all new settlement building and urged US President Barack Obama to keep up his opposition.

At the end of a two-day summit in Libya, they called for Mr Obama to remain loyal to his "initial and key position" to work to halt Jewish settlement on Palestinian land that posed a "dangerous obstacle" to peace efforts.

The summit was dominated by Israel's announcement earlier this month of plans to build 1,600 settler homes in mainly Arab east Jerusalem, which the Palestinians see as the capital of their future state.

US efforts to broker indirect "proximity" talks between Israel and the Palestinians were stymied by the announcement, which came just days after the Arabs had agreed to give negotiations another chance.

Arab leaders mulled legal and political measures to confront Israel and adopted a resolution to raise $500 million in aid to help bolster the Palestinian presence in Jerusalem, Arab League chief Amr Mussa said.

"The resumption of Palestinian-Israeli negotiations demands that Israel implements its legal commitments by stopping all settlements in the occupied Palestinian territories, including east Jerusalem," the final resolution read.

The leaders' statement insisted "on the need to have a timeframe for these negotiations and that they resume from where they left off and on the basis of what has been agreed upon in the peace process."

The meeting in the coastal city of Sirte also agreed on "a plan of action that includes political and legal measures to confront Israel's attempts to Judaise Jerusalem and the repeated aggression on its holy sites."

Iraqi Foreign Minister Hoshyar Zebari said that the fund is aimed at "enhancing the Palestinian presence in Jerusalem," which is the home of the Al-Aqsa mosque compound, Islam's third holiest site.

Arab League officials said the fund will be used to improve infrastructure, build water wells, hospitals and schools as well as to provide financial compensation to Palestinians evicted from their homes by Israeli authorities.

The summit came as Israeli Prime Minister Benjamin Netanyahu, who has vowed no let-up in plans to build new settler homes in annexed east Jerusalem, yesterday blamed the Palestinians for blocking peace efforts.

"We continue to see that the Palestinians are hardening their positions. They do not show any sign of moderation," said Mr Netanyahu, who predicted the summit would not support the US-led efforts to revive negotiations.

Peace talks were broken off during Israel's devastating December 2008-January 2009 assault on the Hamas-ruled Gaza Strip.

Palestinian president Mahmud Abbas already on Saturday ruled out new talks with the Jewish state until it halts settlements, despite agreeing earlier this month to US calls to enter into indirect negotiations with Israel.

"We cannot resume indirect negotiations as long as Israel maintains its settlement policy and the status quo," Mr Abbas told the summit's opening session.

Mr Mussa, who said ahead of the summit that talks with Israel had become "pointless," urged Arab leaders to mull their options in case of a total collapse of the Middle East peace process.

Mr Abbas also warned on Saturday that "wars can erupt if Israeli violations continue" and urged Arab nations to "rescue" Jerusalem.

The international community has never recognised Israel's annexation of east Jerusalem after the 1967 Middle East war, when it captured the West Bank, and considers all settlements illegal.

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