JERUSALEM, June 21 (Allyn Fisher-Ilan/Reuters) - Israel took another step on Monday towards implementing a construction plan that would entail demolishing some 20 Palestinian homes in East Jerusalem, a project Palestinians condemn as settlement expansion.

The Jerusalem municipal planning board convened to discuss a proposal that could renew diplomatic pressure on Prime Minister Benjamin Netanyahu a day after he bowed to world calls to ease a Gaza blockade following Israel's deadly raid on an aid flotilla.

Citing concern over Israel's international image, Netanyahu had persuaded Jerusalem Mayor Nir Barkat to put the King's Garden project on hold in March, at a time when Washington was struggling to revive Israeli-Palestinian peace talks.

City spokesman Stephan Miller said the board was likely to approve rezoning for the plan to build 1,000 homes across 54 acres (22 hectares) in the East Jerusalem neighborhood of Silwan.

The blueprint also calls for demolishing about 20 Palestinian homes built without permits, while licensing another 60 of the houses Israel says were built illegally. Palestinians say building permits are impossible to obtain from Israel.

Palestinian leaders have described the project as another attempt by Israel to cement its claim to all of Jerusalem, whose eastern sector it captured in a 1967 war and annexed in a move that is not recognized internationally.

This is a municipality of colonization, said Adnan al-Husseini, the Palestinian Authority-appointed governor of Jerusalem. You cannot claim to be building 'gardens' while you are depriving people of a house to live in.

Israel drew U.S. anger in March, when it announced during a visit by Vice President Joe Biden a plan to build 1,600 homes for Jews in an area of the occupied West Bank it considers part of Jerusalem. Israel assured Washington building at the Ramat Shlomo settlement site would not begin for at least two years.


GAZA EMBARGO

Under world pressure to rethink a Gaza embargo condemned by critics as collective punishment, Israel announced on Sunday that it would allow in all goods except for weapons and materials used to make them, while maintaining a sea blockade.

Netanyahu announced the new policy, which won U.S. and European praise, together with international Middle East envoy Tony Blair, who had been lobbying Israel to revise an embargo in force since Hamas Islamists rose to power in the coastal territory in 2006.

The White House said after the announcement that US President Barak Obama would meet Netanyahu on July 6.

Miller said the King's Garden project was intended to improve the quality of life in Silwan and that a park and public complex slated to be built in the area would be used by Arabs and Jews alike.

Palestinians want East Jerusalem to be the capital of a state they hope to establish in the West Bank and Gaza Strip.

The United States, which has publicly urged Israeli authorities to halt any planned demolitions of Palestinian homes, had praised Netanyahu's move to delay municipal debate on the initiative three months ago.

Miller said that even with the approval of the Jerusalem planning board, final ratification of the project, which also must go through a district commission, could take months.

But any move that could bring the home demolitions closer seemed likely to bring more diplomatic pressure on Israel, which was rocked by an international outcry over its killing of nine Turkish pro-Palestinian activists in the flotilla raid.

Israel said its naval commandos acted in self-defense after activists wielding metal rods and knives swarmed a boarding party in the May 31 interception. (Additional reporting by Mohammed Assadi in Ramallah, Editing by Samia Nakhoul)