Israel has announced plans to build new homes in East Jerusalem, angering Palestinians.
The government said Wednesday one of the four projects includes 1,500 homes in the Ramat Shlomo area.
Palestinians want East Jerusalem to be the capital of their future state, and they fiercely oppose Israeli plans to build there.
State Department spokeswoman Jen Psaki says the United States does not think continued settlement activity creates a positive environment for the revived peace talks.
The plans for new settlements come after Israel freed 26 Palestinian prisoners in the second of a four-stage prisoner release - one of the conditions for the new peace talks.
Psaki calls freeing prisoners who have killed Israeli citizens a difficult but necessary step to ensure the success of the talks.
Palestinian President Mahmoud Abbas holds the hand of a freed prisoner during a welcome ceremony at the Palestinian Authority headquarters, in the West Bank city of Ramallah, Oct. 30, 2013.
A Palestinian man fires a gun while others gather around a released Palestinian prisoner, Omar Masoud, upon his arrival at his family house in Shati Refugee Camp, Oct. 30, 2013.
Released Palestinian prisoner Omar Masoud, who was arrested in May 1993 for killing an Israeli lawyer, walks in the alley of his neighborhood after spending 20 years in an Israeli jail, Shati Refugee Camp, Gaza City, Oct. 30, 2013.
Palestinian militants fire during a celebration after the release of Palestinian prisoner Mohammed Sabbagh in the West Bank refugee camp of Jenin, Oct. 30, 2013.
Released Palestinian prisoner Mohammed Sabbagh is surrounded by militants as he greets the crowd at his home in the West Bank refugee camp of Jenin, Oct. 30, 2013.