Israel is perplexed after stinging criticism from the United States on its new Jewish settlement expansion.
Israeli Prime Minister Benjamin Netanyahu held an urgent meeting on Saturday with senior Cabinet ministers to discuss plummeting relations with the United States.
On Friday, U.S. Secretary of State Hillary Clinton made an angry phone call to Mr. Netanyahu, saying Israel's announcement of Jewish settlement expansion in disputed East Jerusalem is "a deeply negative signal" for the Middle East peace process and ties with the U.S.
The Israeli announcement came last Tuesday, during a visit by U.S. Vice President Joe Biden, and Clinton described the timing as an insult.
Mr. Netanyahu said the announcement by the Interior Ministry was made without his knowledge, and the timing was unintentional. He apologized to Biden and had hoped that the matter was closed.
Israel's ties with the U.S. have plummeted since President Barack Obama took office more than a year ago and demanded a complete freeze on Jewish settlement expansion. Israel refused, but eventually imposed a partial freeze on settlement construction in the West Bank.
Israeli analyst Yoni Ben Menachem says the freeze does not apply to East Jerusalem, which the Palestinians claim as the capital of their future state. "Israel has the right to continue and to build in Jerusalem and in East Jerusalem, and this is the formal policy of this government. And this our right to build in Jerusalem our capital," he said.
But he says the timing of the announcement was a fiasco. "This unplanned announcement embarrassed the visit of Vice President Biden to Israel. And maybe it was right, the right decision, but it was not so smart," he said.
The Israeli announcement threw a wrench into a U.S. brokered agreement for indirect peace talks, after a 14-month stalemate. The Palestinians say they will not return to the negotiating table until Israel rescinds the decision for new construction in East Jerusalem.