JERUSALEM - Israeli and Palestinian negotiators yesterday launched their first full-fledged peace talks since 2001, but the session was clouded by tensions over an Israeli construction project in East Jerusalem and rocket attacks by Palestinian extremists based in the Gaza Strip.

Israel's plans to build 300 homes in a neighborhood it calls Har Homa drew denunciations from Palestinian officials and had prompted them to talk of boycotting yesterday's start of a promised yearlong effort to reach a peace agreement.

The Palestinians attended yesterday's talks but used the opportunity to criticize the Israeli plans.

Saeb Erekat, the chief Palestinian negotiator, said the Israeli project threatened to undermine hopes for reviving the peace process after the U.S.-hosted conference last month in Annapolis, Md.

"Either you choose a path of settlement and incursion and business as usual or you choose peace," Erekat said the Palestinians had told the Israeli negotiators.

The two teams, led by Israeli Foreign Minister Tzipi Livni and former Palestinian Prime Minister Ahmed Qureia, met at a Jerusalem hotel for about an hour and a half. Livni and Qureia left without speaking to reporters.

"They expressed their concerns. We also expressed our concerns," said Mark Regev, spokesman for Israeli Prime Minister Ehud Olmert.

Israel's immediate concerns center on security in the West Bank and Gaza, from which extremists launched more than 20 rockets and mortars into southern Israel yesterday.

Yesterday's session was to focus on setting the framework and schedule for negotiations over central issues, such as the status of Jerusalem, the fate of Palestinian refugees, and the borders of a future Palestinian state.

Israeli officials said the two teams agreed to meet again after the Muslim holiday of Eid al-Adha late this month.

The latest barrage of rocket fire into Israel by Gaza-based extremists came a day after Israeli tanks and troops had moved into the southern part of the strip, killing six people in what the army said was a continuing effort to staunch the attacks.

The burst of rockets prompted the mayor of the town of Sderot, which has been a frequent target, to resign. Mayor Eli Moyal said the Israeli government had done little to protect his town.

Olmert and Palestinian Authority President Mahmoud Abbas had vowed in Annapolis to try to reach a peace settlement by the end of 2008.

The two sides plan a parallel effort to put in place the first stage of the U.S.-backed peace blueprint known as the road map. That document, which lays out a step-by-step path to Palestinian statehood, has been thwarted by the failure of both sides to fulfill preliminary requirements.

Under the road map, Israel is obligated to freeze settlement activity in the West Bank and dismantle illegal outposts built since March 2001.

The Palestinians are committed to act against armed groups that have carried out hundreds of attacks on Israelis since the latest conflict broke out in 2000.

Expectations are extremely low here that Olmert and Abbas, both politically weak, can forge a lasting peace during the next year. Yesterday's meeting drew little media attention.

Israel seized East Jerusalem during the 1967 Middle East war and then annexed it. Palestinians say the construction plans for the Har Homa neighborhood violate Israel's commitment to freeze settlement activity.

Secretary of State Condoleezza Rice said last week that the building plans would not help efforts to revive peace talks.

Israeli officials maintain that building plans were approved years ago and that Israel retains the right to build anywhere inside the boundaries of Jerusalem.

Most of the world does not recognize the annexation and considers Israeli neighborhoods in East Jerusalem as illegal settlements.

At the same time, the rocket salvos from Gaza are a reminder of the limits of Abbas' authority. Since June, when Hamas fighters routed security forces allied with Abbas' Fatah party to gain control of Gaza, the Palestinian Authority in effect has ruled only in the West Bank.