Israel's PM Benjamin Netanyahu has urged the Palestinians to continue peace talks despite an end to Israel's ban on West Bank settlement-building.
In a statement moments after the end of the 10-month partial freeze, he asked Palestinian leader Mahmoud Abbas to continue seeking a "historic" deal.
Hours later, bulldozers were reported to have begun work in two settlements.
Mr Abbas had warned that peace talks would be a "waste of time" unless the freeze was extended.
Construction work
Israeli media said bulldozers had started levelling ground for 50 homes in the settlement of Ariel in the northern West Bank.
However, construction work was expected to be slow because of the Jewish holiday of Sukkot.
Similar activity was also reported in the settlement of Adam.
Meanwhile, the US renewed calls for Israel to maintain the construction freeze, saying its position on the issue remained unchanged and the US state department was staying "in close touch" with all parties.
US Secretary of State Hillary Clinton spoke to Mr Netanyahu and also to Tony Blair, the representative of the Middle East Quartet (the EU, Russia, the UN and US), as the end of the construction freeze neared, a spokesman said.
Israel says the settlements are no bar to continuing direct talks on key issues, and US negotiators have been working intensively to secure a deal.
On Saturday, Israeli Defence Minister Ehud Barak told the BBC he would attempt to convince government colleagues of a compromise deal, said the chances of a deal on the issue was "50/50".
Gun attack
The freeze on building in the West Bank expired at midnight local time on Sunday (2200 GMT).
Earlier in the evening, a pregnant Israeli woman and her husband were lightly wounded in a gun attack in the West Bank.
Israeli police said Palestinian gunmen opened fire on their car south of the city of Hebron. The woman later gave birth in hospital.
Meanwhile, some Jewish settlers started celebrating the end of the construction ban.
At the Jewish settlement of Revava, near the Palestinian town of Deir Itsia, reports said they released balloons and broke ground for a new nursery school before the moratorium expired.
The Israel prime minister called on the Palestinians to continue peace talks, which recently resumed after a 20-month pause and have the strong backing of US President Barack Obama.
"Israel is ready to pursue continuous contacts in the coming days to find a way to continue peace talks between Israel and the Palestinian Authority," Mr Netanyahu said in his statement.
It was possible "to achieve a historic framework accord within a year", Mr Netanyahu said.
However, his statement did not directly mention the issue of the settlement freeze.
He had earlier urged settlers "to display restraint and responsibility".
'Waste of time'
On Sunday, Mr Abbas, the Palestinian Authority president, warned that the peace talks renewed earlier this month would be futile unless the ban continued.
"If Israel does not continue the settlement freeze, the peace process will be a waste of time," the AFP news agency quoted him as saying during a visit to Paris.
However, Mr Abbas suggested that he would consult with other Arab leaders before any decision was taken. A meeting is expected in Cairo within the next 10 days.
The BBC's Wyre Davies in Jerusalem says the Palestinian leader is in a difficult position, with Israel offering few concessions, at least publicly.
If he continues negotiations, he will face accusations from his own side that the Palestinians will have backed down in the face of Israeli intransigence, our correspondent says.
It is estimated that about 2,000 housing units in the West Bank already have approval and settler leaders say they plan to resume construction as soon as possible.
The partial moratorium on new construction was agreed to by Israel in November 2009 under pressure from Washington.
It banned construction in the West Bank, occupied by Israel since the Middle East war of 1967, but never applied to settlements in East Jerusalem.
US President Barack Obama has urged Israel to extend the moratorium, saying it "made a difference on the ground, and improved the atmosphere for talks".
Nearly half a million Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. They are held to be illegal under international law, although Israel disputes this.
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