Prime minister Ehud Olmert has promised Shas that building will go on in settlements around Jerusalem, despite US demands that Israel desist from building across the Green Line.

Shas has come under increasing pressure both from right-wing elements and its ultra-Orthodox rival, United Torah Judaism, to leave the coalition over the building freeze and concessions that the government has made to the Palestinian Authority.

Rocketing property prices and lack of building space has put the construction in the Haredi towns of Beitar Illit and Kiryat Sefer, across the Green Line, on the top of the agenda of the ultra-Orthodox parties.

At the same time, Israel has been risking the rising ire of the US administration for what Secretary of State Condoleezza Rice described in her visit this week to Israel as “endangering the Annapolis process”.

However, one Israeli diplomat told the JC that Ms Rice’s response was merely a restatement of the standard US position.

“The quiet talks between Foreign Minister Tzipi Livni and Palestinian negotiator Ahmed Qureia are going on well, so this is not the time for Rice to rock the boat,” he said.

Mr Olmert sees the stability of his coalition as a more pressing threat and this week called Shas spiritual leader Rabbi Ovadia Yosef to ensure him that building around Jerusalem would go on.

At a meeting of the Kadima parliamentary faction this week, Mr Olmert said: “we are not building new settlements, Beitar is not a new settlement. We don’t have to announce every other day that we will continue to build the neighbourhoods of Jerusalem.”