With great respect to the European and American leaders who rushed to condemn Israel's intention to build houses in Gilo (which they believe is in East Jerusalem) I suggest that the reaction is based on misinformation,
Firstly Gilo is not in East Jerusalem. It is a residential neighborhood in South Western Jerusalem (*) not far from the Knesset building. Objecting to Israel building houses in Gilo is akin to objecting to Palestinians building in Raamallah. Gilo does not resemble outposts in the West Bank.. It is an integral part of the Jerusalem municipality as recognized even by the late Yitzhak Rabin.
Secondly, Gilo is not an impediment to peace negotiations since everyone acknowledges that the negotiations will involve new borders. In his video message to the November 2000, Rabin Rally in Tel Aviv, President Obama urged Israel to pursue Rabin's legacy. It is therefore relevant to recall that in his last speech to the Knesset on October 5, 1995, Rabin said "The borders of the State of Israel, during the permanent solution, will be beyond the lines which existed before the Six Day War. We will not return to the 4 June 1967 lines.
Lenny Ben-David points out the construction area is near the synagogue marked off here.