CAIRO, March 10 (Reuters & JMCC) - Arab League chief Amr Moussa said on Wednesday that Palestinian President Mahmoud Abbas had told him he would not enter indirect talks with Israel, only days after the Palestinian side had agreed to the contacts.

The about-turn puts on hold U.S. efforts to bring together Israel and the Palestinians in so-called proximity talks. The proposed talks, the Palestinian chief negotiator said this week, were a last chance to keep the Middle East peace process alive.

The decision came after Israel announced on Tuesday it would erect 1,600 settler homes in an area of the occupied West Bank it annexed to Jerusalem. Abbas had only agreed to the talks on condition that Israel imposed a Jewish settlement freeze.

The Palestinian president decided he will not enter into those negotiations now ... the Palestinian side is not ready to negotiate under the present circumstances, Moussa told a news conference following an urgent meeting of Arab delegates at the Arab League headquarters in Cairo.

He said Abbas had conveyed the decision to him by phone.

Our position is clear. There cannot be talks, direct or indirect, if the recent Israeli decisions are not canceled, Moussa told reporters. 

No immediate comment was available from Israeli or Palestinian officials.

U.S. Vice President Joe Biden publicly scolded Israel on Wednesday over the settlement plan, saying it was undermining peace efforts after Palestinians agreed to US-mediated talks.

Israel also this week approved construction of 112 new Jewish homes in the Beitar Illit settlement in the occupied West Bank, on land Israel captured in a 1967 war.

Arab League delegates said the resumption of the talks hinged on Israel halting settlement expansion in East Jerusalem and occupied territories.

Moussa said the Arab League's backing, won last week, for four months of proximity talks was now under reconsideration and Arab ministers would meet in a few days to make a decision.

In case of the failure to halt Israeli actions which are changing the population structure and geographic composition of the occupied Palestinian territories including East Jerusalem, and to withdraw the announcement for the construction of hundreds of settlements in occupied Jerusalem, the committee concludes that the proposed talks are irrelevant, Moussa said.

Abbas broke off peace talks with Israel after Israel's offensive in the Gaza Strip in December 2008.

Israeli Prime Minister Benjamin Netanyahu in November ordered a 10-month halt to new housing starts in West Bank settlements but exempted areas Israel considers part of Jerusalem and projects for Jewish homes in the eastern sector of the city, captured in 1967