(Corrects Palestinian position on "Jewishness" of Israel)
* New homes will be built in occupied West Bank
* Jewish settlements are key issue in peace talks
JERUSALEM, March 19 (Reuters) - Israel's Jerusalem municipality approved building plans on Wednesday for 184 new homes in two Jewish settlements in the occupied West Bank, drawing anger from Palestinians engaged in faltering statehood talks.
A municipality spokeswoman said the local planning committee had approved requests by private contractors who purchased the land years ago for the construction of 144 homes in Har Homa and 40 dwellings in Pisgat Zeev.
Hanan Ashrawi, a senior member of the Palestine Liberation Organization (PLO), accused Israel of trying to derail U.S.-sponsored peace talks in which the future of settlements on land that Palestinians want for a state is a major issue.
"It is has become evident that Israel has done everything possible to destroy the ongoing negotiations and to provoke violence and extremism throughout the region," Ashrawi said in a statement.
Israel says Palestinian refusal to recognise it as a Jewish state is the main stumbling block. Palestinian leaders say they recognised Israel in interim peace deals and there is no need for them to recognise its Jewishness.
Har Homa and Pisgat Zeev settlements are in a part of the West Bank that Israel annexed to Jerusalem after capturing the territory in the 1967 Middle East war. The annexation was not recognised internationally.
Palestinians are seeking a state in East Jerusalem, the West Bank and Gaza Strip. They say Israeli settlements, regarded as illegal by most countries, could deny them a viable, contiguous country.
Israel regards Pisgat Zeev and Har Homa as neighbourhoods of Jerusalem that it would keep under any future peace deal with the Palestinians.
The two sides resumed U.S.-brokered peace talks in July, but the negotiations appear to be going nowhere. Washington is struggling to formulate agreed principles that would extend the talks beyond an original April target date for a final deal.
More than 500,000 Israelis have settled in the West Bank and East Jerusalem, areas that are home to about 2.8 million Palestinians. (Writing by Maayan Lubell; Editing by Jeffrey Heller and Robin Pomeroy)