The Palestinian Authority has warned that it will pull out of peace talks if Israel renews the construction of settlements in the occupied West Bank.
Negotiators are due to hold face-to-face talks in Washington next week, for the first time since late 2008.
But the top Palestinian negotiator, Saeb Erekat, said that approval of any new settlement construction would cause the Palestinian side to walk away.
Israel's 10-month partial construction freeze expires on 26 September.
It applies only to areas within the West Bank, not Jerusalem municipality.
Israel's Prime Minister Benjamin Netanyahu is under pressure from within his own coalition government to end the construction freeze, and allow new projects to go ahead.
Close to 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. They are considered illegal under international law, although Israel disputes this.
'Settlements or peace'
Speaking at a news conference in the West Bank city of Ramallah, Palestinian negotiator Mr Erekat said it was time for Israel's government to choose between settlements and peace.
"I believe that for things to go back to square one is inconceivable, and that exchanging negotiations for having to take orders is inconceivable.
"We hope that the Israeli government will be a partner for us by stopping settlements. Now they have the choice, either settlements or peace. We hope they choose peace."
Mr Netanyahu has not commented on the issue of settlements since the US announced on Friday that talks would resume next week.
US President Barack Obama has invited Mr Netanyahu and Palestinian Authority President Mahmoud Abbas to Washington for the US-sponsored talks. Mr Obama hopes to forge a deal within one year.
Few commentators in Israel or on the Palestinian side are expressing much optimism about the peace talks, the BBC's Rupert Wingfield Hayes reports from Jerusalem.
Correspondents say prospects of a comprehensive deal are slim, as serious disagreements exist on core issues - including the construction of Jewish settlements, the status of Jerusalem, the borders of a future Palestinian state and the right of return.