What I meant was Israel has steadily been building settlements in East Jerusalem for years. East Jerusalem was supposed to belong to Palestine as you noted. That status did not change with Olmert. So no, Israel has not been restricting her settlements to territory negotiated as hers
There has been no negotiation. There has long been an expected "status quo" with regards to certain likelihoods in a negotiated agreement:
Green Line with land swaps
East Jerusalem as part of Palestine
Hebron as part of Palestine
etc
We know this to be true because Olmert offered all of this. That plan -- that "status quo" -- was rejected by the Arab Palestinians. They actively demonstrated that they are not going to accept a negotiated deal based on the accepted "status quo". And that DID change things. Israel fully expected to give up land and control over holy places and some measure of security in exchange for peace. But knowing, as of 2008, that the Arabs refuse accept the expected deal, Israel is making unilateral decisions. There is no point in giving up land and holy places and security for a continued war. So Israel is taking what she feels she needs to protect herself. Does it suck for the Palestinians, shrug, maybe? But if they won't negotiate -- what is Israel to do?