Palestinians denounce new East Jerusalem homes plan
Palestinian negotiator Saeb Erekat said Israel was "digging itself a hole", while an Israeli MP said Mr Netanyahu had "decided to spit into Obama’s eye".
The announcement came as Barack Obama and Mr Netanyahu held unusually low-key talks at the White House on Tuesday.
The trip was overshadowed by the worst crisis in US-Israeli ties for decades.
The row flared two weeks ago when, during a visit by US Vice-President Joe Biden, Israel unveiled plans to build 1,600 homes in part of East Jerusalem.
New apartments
Mr Netanyahu said he regretted the bad timing of the earlier announcement, but Washington branded it an insult.
Minutes before Mr Netanyahu’s fence-mending visit to the White House on Tuesday, it emerged the Jerusalem municipal government had approved the building of 20 new apartments.
The project has been funded by American millionaire Irving Moskowitz, a patron of Jewish settler groups.
The development is planned for the site of an old hotel in occupied East Jerusalem’s Sheikh Jarrah area, a flashpoint neighbourhood.
Palestinian chief negotiator Saeb Erekat said it cast doubt on Israel’s credibility as a peace partner.
"Israel is digging itself into a hole that it will have to climb out of if it is serious about peace," he said.
Washington said it was seeking clarification on the latest plans.
But Israeli MP Eitan Cabel - a member of the Labor Party, which sits in the governing coalition - accused Mr Netanyahu of a fresh insult to the US.
"Netanyahu decided to spit into Obama’s eye, this time from up close," Mr Cabel was quoted by the Associated Press news agency as saying. "He and his pyromaniac ministers insist on setting the Middle East ablaze."
The Israeli anti-settlement watchdog, Peace Now, which discovered the latest building plan, said it could prove "devastating" for hopes of resuming peace talks, stalled for more than a year.
But an Israeli Likud MP, MK Yariv Levin, was quoted as saying the building approval was the "translation of Netanyahu’s words into deeds".
It was an apparent reference to Mr Netanyahu’s speech on Monday to an influential pro-Israeli lobby group in Washington, when he reasserted Israel’s "right to build" in Jerusalem.
Playing tough
The Israelis said there had been a "good atmosphere" during Tuesday’s talks between Mr Netanyahu and Mr Obama.
But the BBC’s Kim Ghattas in Washington notes the Israeli leader did not get the reception usually reserved for America’s allies.
There was no press conference, no lavish welcome, and the White House did not even release a picture of the meeting.
It all signals that the US is playing tough, making clear it is upset with the Israeli government, says our correspondent.
Last week Mr Obama said the approval of the plans for 1,600 homes in the Ramat Shlomo area of East Jerusalem was not helpful to the peace process.
Palestinians want East Jerusalem for their future capital, but Israel insists the city cannot be divided.
Nearly 500,000 Jews live in more than 100 settlements built since Israel’s 1967 occupation of the West Bank and East Jerusalem.
They are considered illegal under international law, although Israel disputes this.
The row also comes amid frayed ties between Israel and Britain.
London announced on Tuesday it was expelling an Israeli diplomat over the forgery of British passports used by the suspected killers of a Hamas commander in Dubai.
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