JERUSALEM - Israel declined comment on Tuesday on a report of new U.S. demands it curb settlement round Jerusalem, but it reaffirmed its determination to go on building on occupied West Bank land that it has annexed to the city.

The Israeli daily Yedioth Ahronoth said President Barack Obama's envoy George Mitchell had asked an aide to Prime Minister Netanyahu, at a meeting in London on Monday, to block planned approvals for new building at Gilo, a Jewish settlement on land Israel captured in 1967 and annexed to its Jerusalem municipality.

Israeli government spokesman Mark Regev declined comment on the report, which also said Netanyahu's negotiator had rejected Mitchell's request. Regev repeated Israel's refusal to include areas it annexed to Jerusalem as part of any accommodation of Obama's calls for restraint in West Bank settlement growth:

Prime Minister Netanyahu, in order to get the peace process back on track, is willing to adopt the policy of the greatest possible restraint concerning growth in the West Bank -- but this applies to the West Bank, Regev said.

Jerusalem is Israel's capital and will remain as such, he said, stating an Israeli position not recognized by world powers and contested by Palestinians who want to establish a state with Jerusalem as its capital.

U.S. officials were not immediately available for comment.

Obama is pressing for a resumption of peace negotiations, which were suspended nearly a year ago.

While calling on Israel to show restraint in settlement expansion as a gesture of goodwill, Washington has also urged Palestinian President Mahmoud Abbas to drop his demand for a total freeze on settlements as a condition for new talks.

Netanyahu has offered a temporary restriction on building projects that have not already started in the West Bank, but Abbas has rejected this as insufficient, both in scale and because it does not include areas Israel annexed to Jerusalem.

Israeli political sources say Mitchell and Netanyahu's team are exploring other ways to promote a resumption of talks.

Palestinian officials asked the United Nations and the European Union earlier this week to consider whether they might at some point recognize a Palestinian state without a negotiated solution to the conflict with Israel.

Swedish Foreign Minister Carl Bildt said it was premature for the European Union to discuss recognizing a Palestinian state. ...there has to be one first. We would be ready to recognize a Palestinian state but conditions are not there as of yet, he told reporters in Brussels.

(Writing by Ori Lewis; editing by Alastair Macdonald and Tim Pearce)

(For blogs and links on Israeli politics and other Israeli and Palestinian news, go to blogs.reuters.com/axismundi)

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