JERUSALEM (CNN) -- Israel has approved the construction of almost 900 new homes in East Jerusalem, a move that could hinder international efforts to secure a peace deal by year's end.

Israel is under pressure to dismantle East Jerusalem outposts like this one in Maaleh Hazeitim, seen in April.

The Palestinians hope to make East Jerusalem the capital of a future Palestinian state.

A spokesman for Israeli Housing Minister Zeev Boim said his office will issue a tender this week for the construction of 884 houses, 121 of them in Har Homa. The rest will be in Pisgat Zeev.

Both are neighborhoods annexed by Israel in 1967. The housing ministry said it timed the issuance of the permits to coincide with the 41st anniversary of the annexation.

Israel and the Palestinians are in peace talks that include the future of Jewish settlements and East Jerusalem.

In March, Israel announced plans to build 600 homes in East Jerusalem as part of the Jerusalem mayor's initiative to construct 40,000 homes in the city to ease the housing plight of young couples.

At the time, U.S. Secretary of State Condoleezza Rice -- who was in the region to shore up support for the peace initiative -- said Israel should stop all settlement activity.

Largely at the request of the United States, Israeli Prime Minister Ehud Olmert froze construction in both Har Homa and Pisgat Zeev, the Israeli newspaper Haaretz reported.

The newspaper said Israel issued a tender last year for the construction of 300 housing units in Har Homa, sparking harsh international criticism.

As a result, Olmert said he will need to approve all future construction plans personally, the paper said.

CNN's Shira Medding contributed to this report.

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