JERUSALEM, March 24 (Reuters) - Israel plans to build more Jewish homes in occupied East Jerusalem, an Israeli official said on Wednesday, a day after talks between Prime Minister Benjamin Netanyahu and President Barack Obama.

Elisha Peleg, a Jerusalem city councilor and member of the municipal planning commission, said 20 units had been approved for a compound in the Sheikh Jarrah neighborhood of East Jerusalem known as the Shepherd's Hotel.

Peleg called it just a technical step adding that a total of 100 homes would be built, beginning with 20 cottages.

Sheikh Jarrah has become a flashpoint of tension in the city since last year when Israel evicted several families descended from Palestinian refugees after an Israeli court found for Jewish families claiming ownership of these properties.

Palestinians want East Jerusalem to be the capital of their future state but Israel, which annexed East Jerusalem after capturing it along with the rest of the West Bank in 1967, considers the whole of the city as its capital.

Palestinian negotiator Saeb Erekat said President Mahmoud Abbas would insist that Israel revoke the plans to build in Sheikh Jarrah, as well as another published two weeks ago to build 1,600 houses at another site near the city.

When we say peace or settlements, it seems he goes for the settlements, Erekat said of Netanyahu. (Writing by Allyn Fisher-Ilan; Editing by Dominic Evans)