JERUSALEM - Israeli Prime Minister Ehud Olmert promised yesterday to "forge a historic path" toward a final settlement with the Palestinians at this week's first peace talks in nearly seven years.

Israeli and Palestinian negotiators are set to meet tomorrow to begin talks aimed at reaching a peace agreement by the end of 2008. Olmert and Palestinian Authority President Mahmoud Abbas set the target at last month's conference in Annapolis, Md.

Speaking at a business conference in Tel Aviv, Olmert acknowledged that the new dialogue was full of risks. He said that Abbas' government was weak and that Palestinian security forces were not yet capable of ensuring law and order in the West Bank.

"This is an opportunity that entails many uncertainties, many risks," Olmert said. "We cannot ignore them. But we absolutely must not allow uncertainty and risks to prevail, because an opportunity also exists."

Olmert rejected criticism from domestic hard-liners who oppose concessions to the Palestinians, warning that, if Israel did not agree to relinquish control of Palestinian areas, "the idea of one state for all residents with equal rights to vote threatens the existence of the state of Israel."

The last round of peace talks broke down in violence in early 2001, shortly after the eruption of the second Palestinian uprising. Israeli and Palestinian officials have said tomorrow's meeting was likely to focus on technical issues, with the real work to begin after an expected visit by President Bush early next month.

But the talks already have run into trouble after Israel's announcement last week that it planned to build more than 300 homes in disputed East Jerusalem.

The Palestinians accuse Israel of negotiating in bad faith over Jerusalem, one of the most contentious issues in the Israeli-Palestinian conflict.

The Palestinians want to make East Jerusalem the capital of a future independent state. Israel captured East Jerusalem in the 1967 Mideast war, and annexed the area. It has signaled it would turn over Arab sections of the city to the Palestinians, but plans to retain all Jewish neighborhoods in the city.

The latest construction project is in Har Homa, a new Jewish neighborhood built in East Jerusalem, and the Palestinians say the issue needs to be worked out before negotiations begin. The lead Israeli and Palestinian negotiators were meeting yesterday to discuss this latest setback.