JERUSALEM, Oct 30 (Reuters) - Israel announced plans on Wednesday to build hundreds of new settlement homes on land that the Palestinians want for a future state, hours after it released a group of Palestinian prisoners from its jails.

Israel's Interior Ministry said 1,500 housing units will be built in Ramat Shlomo, a settlement for mainly Ultra-Orthodox Jews established in East Jerusalem in 1995.

In a bid to appease right-wing coalition members angered by the amnesty for 26 Palestinian inmates, government officials had said that housing projects would be unveiled this week in settlements that Israel plans to keep in any peace deal.

Palestinians see the settlements as obstacles to achieving a viable state in the West Bank, the Gaza Strip and East Jerusalem, territories Israel captured in the 1967 Middle East war. Most countries deem Israeli settlements there as illegal.

Israel counts Ramat Shlomo as part of its Jerusalem municipality and says the city will remain its eternal, indivisible capital -- something Palestinians say is unacceptable.

U.S.-brokered peace talks between the two sides restarted in July after a three-year hiatus.

The release of Palestinian prisoners, all of whom were convicted of killing Israelis at least 20 years ago, was part of the package worked out by Washington to revive the long-dormant negotiations.

Palestinians have warned that continued settlement expansion could put the negotiations at risk. (Writing by Maayan Lubell; Editing by Crispian Balmer)

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