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Israel, however, says the road map does not apply to Jerusalem. Mark Regev, a spokesman for Israeli prime minister Ehud Olmert, said: "Israel will abide by all its obligations under the road map. Its obligations apply to the West Bank, Jerusalem is different. Jerusalem is our capital. It is Israeli sovereign territory."

However, Saeb Erekat, the chief Palestinian negotiator, wrote a letter to the quartet of Middle East negotiators - the US, the EU, the UN and Russia - saying the announcement was a violation of Israel's road map commitments, and calling Israeli settlements "the single greatest threat" to peace negotiations.

The road map calls on Israel to dismantle its furthest settlements and to freeze all settlement activity. It also calls on the Palestinians to curb violence and dismantle armed groups.