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.