The comments were made during a meeting between Israeli Defense Minister Ehud Barak and Egyptian President Hosni Mubarak in the resort town of Sharm el-Sheikh.
Presidential spokesman Suleiman Awwad said plans announced by Israel for the construction of new homes in east Jerusalem were undermining the peace process: "This settlement activity will hijack the only outcome of the Annapolis conference, which was the re-launching of peace negotiations."
He said Egypt held Israel responsible for the lack of any progress in two rounds of talks between the two sides held on December 12 and 24. The talks stalled after the Palestinians demanded that Israel drop plans to build over 300 new homes, and a failure by the Palestinians to halt rocket attacks on Israel from the Hamas-controlled Gaza Strip.
Awwad said the parties also discussed bilateral relations and the border between the two countries, particularly important after Israel accused Egypt of not trying hard enough to curb weapons smuggling to radical Islamic militants.
The Israeli prime minister and the Palestinian president are set to meet on Thursday in an attempt to overcome their differences.
The roadmap plan proposed by international mediators requires Israel to halt the construction of settlements in occupied Palestinian territories. However, Tel Aviv insists the requirement does not extend to east Jerusalem - touted as the capital of any future Palestinian state.
The Israelis are against the separation of Jerusalem, but have agreed to continue talks on the city's status with the Palestinians.
The Gaza Strip has been controlled by Hamas since the hard-line Islamic group seized control of the enclave in June. Abbas's Fatah party controls the West Bank. The division of the Palestinian territories is yet another stumbling block in talks on Palestinian statehood.
U.S. President George W. Bush is set to make a tour of the Middle East between January 8 and 16 in an attempt to boost the peace process in the region. He will visit Israel, the West Bank, Kuwait, Bahrain, the United Arab Emirates, Saudi Arabia, and Egypt.
